Examples of Treasury bonds in the following topics:
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- In the BYPRP approach, we use a bond's yield to maturity, which is the discount rate at which the sum of all future cash flows from the bond (coupon payments and principal payments) are equal to the price of the bond.
- Treasury Bond yield)
- The dividend yield plus projected earnings growth, minus the 10-year Treasury yield
- It can be very difficult to get an accurate estimate of the risk premium on an equity, having a duration of roughly 50 years, using a risk-free rate of such short duration as a 10-year Treasury bond.
- Describe the process for the bond yield plus risk premium approach
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- A bond is an instrument of indebtedness of the bond issuer to the holders.
- The main categories of bonds are corporate bonds, municipal bonds, and U.S.
- Treasury bonds, notes, and bills, which are collectively referred to simply as "Treasuries. " Two features of a bond - credit quality and duration - are the principal determinants of a bond's interest rate.
- Bond maturities range from a 90-day Treasury bill to a 30-year government bond.
- A bond is a form of loan: the holder of the bond is the lender (creditor), the issuer of the bond is the borrower (debtor), and the coupon is the interest.
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- Furthermore, the U.S. government offers Treasury Bills, Treasury Notes, and Treasury Bonds that range in maturity from 15 days to 30 years.
- We draw the supply and demand for two markets: government bond market and corporate bond market.
- Some investors demand fewer corporate bonds and invest more in government bonds.
- Thus, the demand for corporate bonds falls while the demand for government bonds rise because the investors consider the government bonds default-free.
- Did you notice the government bonds have a higher bond price while corporate bonds have a lower bond price?
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- A zero-coupon bond (also called a "discount bond" or "deep discount bond") is a bond bought at a price lower than its face value, with the face value repaid at the time of maturity.
- Treasury bills, U.S. savings bonds, and long-term zero-coupon bonds.
- The bonds can be held until maturity or sold on secondary bond markets.
- Treasury bill market is the most active and liquid debt market in the world.
- The impact of interest rate fluctuations on strip bonds is higher than for a coupon bond.
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- Other bonds include register vs. bearer bonds, convertible bonds, exchangeable bonds, asset-backed securities, and foreign currency bonds.
- Treasury Inflation-Protected Securities (TIPS) and I-bonds are examples of inflation linked bonds issued by the U.S. government.
- Convertible bonds are bonds that let a bondholder exchange a bond for a number of shares of the issuer's common stock.
- The most famous of these are the UK Consols, which are also known as Treasury Annuities or Undated Treasuries.
- Eurodollar bond - U.S. dollar-denominated bond issued by a non-U.S.
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- Governments and corporations issue a variety of bonds with different characteristics and cash flows.Consequently, we explain the main bonds, and the methods investors and analysts use to value them.We show a discount bond in Figure 2, and it is the simplest to calculate.This discount bond is a Treasury Bill issued by the U.S. government.For this example, the Treasury Bill has a face value of $10,000, which we call T-bills for short.Discount bonds do not have aninterest rate listed on them.Thus, U.S. government sells T-bills at a discount or lower price.Lower price reflects the market interest rate.
- This coupon bond is a U.S.
- Treasury note with a face value of $20,000, or T-note for short.Moreover, U.S. government pays 10% interest every six months; consequently, the person who possesses this instrument would clip off one coupon and send it to the U.S. federal government for payment.Hence, the interest payment equals 0.1 × $20,000 × 0.5 = $1,000 for every six months.When the T-note matures on August 10, 2020, the bondholder receives $20,000.
- Bearer Bonds: Who possesses these bonds receive the interest payment.Coupon bonds are usually bearer bonds.
- Municipal Bonds: City and county governments issue municipal bonds to finance local projects.These bonds are popular with investors because the U.S. government does not tax their interest earnings.Consequently, municipal bonds usually pay lower interest rates than other bonds.
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- The issuer of a bond has to repay the nominal amount for that bond on the maturity date.
- Most bonds have a term of up to 30 years.
- In the market for United States Treasury securities, there are three categories of bond maturities:
- Where the market price of a bond is less than its face value (par value), the bond is selling at a discount.
- Conversely, if the market price of bond is greater than its face value, the bond is selling at a premium.
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- A callable bond (also called redeemable bond) is a type of bond that allows the issuer of the bond to retain the privilege of redeeming the bond at some point before the bond reaches its date of maturity.
- Most callable bonds allow the issuer to repay the bond at par.
- The price behavior of a callable bond is the opposite of that of puttable bond.
- Price of callable bond = Price of straight bond – Price of call option
- Coupon #1 was redeemed and cancelled on November 2, 1865, and coupon #35 on November 2, 1882, at which time the principal of $1,000.00 in gold coin was also paid from the Treasury of the City and County of San Francisco and the Bond was cancelled.
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- A government bond is a bond issued by a national government denominated in the country's domestic currency.
- Bonds issued by national governments in foreign currencies are normally referred to as sovereign bonds.
- At the secondary market, each bond will be assigned with very own bond code (ISIN code).
- As an example, in the U.S., Treasury securities are denominated in U.S. dollars.
- Treasury securities would have received lower returns in 2004 because the value of the U.S. dollar declined against most other currencies).