FAS L3

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• The Yield curve provides important information for valuing risk-free cash flows and assessing expectations of inflation and economic growth
• Bond a security sold by governments and corporations to raise Monet from investors today in exchange for promised future payments
• bond certificate indicates the amounts and dates of all payments to be made
• maturity date the final repayment date
• term time remaning until the repayment date
• coupons the promised interest rates
• Principal or Face Value the notational amount we use to compute the interest payments
• zero-coupon bond simplest bond, traded at a discount which is lower than the face value, always send at a discount
• yield to maturity the discount rate that sets the present value of the promised bond payments equal to the current market price of the bond
• coupon bonds pay face value at maturity (FV), pay regular coupon interest payments (CPN)
• discount a bond selling at a discount if the price is less than the face value
• par a bond is selling at x if the price is equal to the face value
• premium a bond is selling at a x if the price is greater than the face value
• bond ratings rating of companies, highest = AAA
• The NPV investment rule when making an investment decision, take the alternative with the highest X
• The Internal rate of return IRR the interest rate that sets the NPV of the cash flow equal to zero, different perceptive of the NPV and are given in percentage
• the payback rule alternative decision rule for single, stand-alone projects, states that you should only accept a project if its cash flow pay back its initial investment within a respecified period
• payback period the amount of time it takes to recover or pay back the initial investment

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