Treasuries/Municipals = 1x per year
Corporations = 2x per year
A bond is a debt security, similar to an IOU. Borrowers issue bonds to raise money from investors willing to lend them money for a certain amount of time. The bond market is bigger than stock market.
When you buy a bond, you are lending to the issuer, which may be a government, municipality, or corporation. In return, the issuer promises to pay you a specified rate of interest during the life of the bond and to repay the principal, also known as face value or par value of the bond, when it "matures," or comes due after a set period of time.
Most bonds are already issued
Investors hold them
Price changes based on interest rates
N = number of payments to maturity
I = market (coupon/interest) rate for similar bonds, Yield to Maturity
PMT = coupon / interest payment
PV = price / present value / market price for bond (price the bond will be trading for)
FV = $1,000, par/face value
Yield to maturity = existing bond until bond matures
Bond is a debt for corporations to raise money
* Corporate bonds pay interest every 6 months (2x per year)
Treasuries and Municipals pay ONCE
Bond Ratings
Bond Rating Services
Bond Interest Theorems
PV = PMT * (1 - (1 + Interest rate)-time)/ Interest rate + Maturity Price/ (1 + interest rate)time
Current Yield = Annual Coupon/Interest Payment / Present Market Price
Years Left = Total Years - (Current Year - Year Issued)
Total Interest = Interest Rate x (1 - Tax Rate)
F = par value
C = maturity value
r = coupon rate per coupon payment period
i = effective interest rate per coupon payment period
n = number of coupon payments remaining
An easy way to derive this formula is to note that the bond price is the present value of all coupons (first term in formula) + the present value of the maturity value (second term in formula)
