Concept of Bonds and Stocks
Concept of Bonds and Stocks
Debentures
- unsecured (no asset backing) II. TIME VALUE OF MONEY
Mortgage Bond Interest
- secured by real property (i.e., bond,
house) - Received from lending money
- Price a borrower must pay for credit
Bond Valuation
Length of Time
Bonds
- long-term securities - The more interest gains
- issued by corp. or govnt.
Coupon Payment
- periodic interest payments Present Value
- interest paid semi-annually until maturity
Coupon Rate - Less than future amount
- Fixed
- expressed as a percentage the bond face
value Future Value
- interest cost issued to the issuer
- Greater than present amount
Par/Face Value
- amount of money paid to the bondholders
at maturity
- amount of money borrowed by bond issuer Risk and Return
Maturity Date
- Safe peso is worth more than risk peso
- date on which the bond matures
- Cost of money
Original Maturity
- Demander of funds must pay - All investment and securities have certain
amount of risk
Inflation
Interest Rate
- Expected average inflation over the life of the
- Applied to debt instruments (bank loans or
investment or securities
bonds)