Bank Analysis School eBook

NK INVESTMENTS INVEST TERMINOLOGY

Dollar value of a security as stated by the issuer on the “face” of the instrument. For bullet maturity bonds, this is the amount of principal due at maturity. Reflects the price paid for a bond and any discount accretion or premium amortization. Held-to-maturity bonds are reported at amortized cost. Price at which a bond could be bought or sold. Quoted market prices are the best evidence of fair value. Available-for-sale bonds are reported at market value. Amount by which the price paid for a bond is lower than the par value. Discounts are accreted over the life of a bond (taken to income). Amount by which the price paid for a bond is higher than the par value. This amount is amortized over the life of the bond (expensed). Interest rate paid to the investor. Calculated as the annual amount of interest divided by par value.

Par Value (Face Value)

Amortized Cost (Book Value)

Market Value (Fair Value)

Discount

Premium

Coupon Rate

Yield-to-Maturity

Overall return to the investor, factoring in any premium or discount.

Weighted average term to maturity of a security’s cash flows. Used to measured price sensitivity to interest rate changes.

Duration