bond In finance, a bond is an instrument of indebtedness of
the bond issuer to the holders (Siegel and Yacht, 2009) . Bonds are fixed income security which the
investors loan to an entity or corporate bodies for a. Money borrowed at a define period of time under a
fixed interest rate. The debt holders are also known as the creditors of bond. The government or other
large corporate bodies use bonds to raise money for their projects.
What are their features and how are they traded?
The features of bond are the various attributes of bond that helps to determine the level and
effectiveness of the bond traded. The first is principal. This is the amount which the issuer paid that will
be repaid at the end of the period. Sometimes, it is linked to a particular asset. The principal amount is
called the face or nominal amount. Next is the maturity. At the maturity stage, the issuer has to repay
the principal amount. Immediately this is done, the issuer has no more obligations to holder after the
maturity (Vuong and Tran, 2010). . There are periods like short term bills, medium term loans and long
term bonds. Long term bonds are maturities greater than twelve months.
During the period of the bond, there is always an interest paid to the holder. This fixed amount of
interest paid to the holder is known as Coupon. Interests are paid in various spaces of time like biannual,
quarterly or annually. There is a yield or outcome made from the traded bond. This product of the
traded bond is known as the yield. It comes in form of current yield, yield to maturity and interest rate
yield. There is a term or feature known as Credit Quality. This is a perso...
... middle of paper ...
...ts that pay dividends after
the deduction of tax.
How do you calculate an annual rate of return?
This is a return in an investment over a given period of time. It is expressed as a time weighted average
annual percentage which includes capital appreciation and returns on capital. This return made annually
is best seen and calculated in form of a geometric mean not si p It is calculated using the
= (37/20) ^(1/5 (yr)) – 1. It is expressed in percentage.
d. You buy a share of stock for $100 and it pays no dividend. A year later the market price is $105. What
is the rate of return?
p - the investors rate of return over the year is
(5/100)*100. Which is equal to 5%?
e. You buy a share of stock for $100 and a year later the market price is $105 and it pays a dividend of
$2. What is the return?
(7/100)*100. Which is equal to 7%
over the period of on p
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