Question

A loan that requires the borrower to make the same payment every period until the maturity date is called a [A].   A [B] pays the owner of the bond a fixed interest payment every period, plus the face value of the bond at the maturity date. A credit market instrument that pays the owner the face value of the security at the maturity date and nothing prior to then is called a [c]. A [D] requires the borrower to repay the principal at the maturity date along with an interest payment. The interest rate that equates the present value of the cash flow received from a debt instrument with its market price today is the [E]. (fill the blanks from the following: simple loan; discount bond; fixed-payment loan; coupon bond ; simple interest rate; yield to maturity; real interest rate; opportunity cost; time value of money)

Answer 1

A loan that requires the borrower to make the same payment every period until the maturity date is called a fixed payment loan.   A coupon bond pays the owner of the bond a fixed interest payment every period, plus the face value of the bond at the maturity date. A credit market instrument that pays the owner the face value of the security at the maturity date and nothing prior to then is called a discount bond. A simple loan requires the borrower to repay the principal at the maturity date along with an interest payment. The interest rate that equates the present value of the cash flow received from a debt instrument with its market price today is the yield to maturity