FINANCE 300 1st Edition Lecture 10Outline of Last Lecture I. Opportunity Cost of Capital II. Amortized Loans III. Balance Due without Table IV. OverpayOutline of Current Lecture I. BondsII. Federal Government BondsIII. Yield to Maturity (YTM)Current LectureI. What are bonds?Bonds are simply loans to a corporation or government entity. A. Note that bonds are not amortized loans. The principal, face value or par value of the bond, is not paid back until the final repayment date, the maturity date. The time remaining until the maturity date is called the term of the bond. However, many bonds do pay regular periodic interest payments called coupon payments.B. Zero coupon bonds are bonds that do not pay coupon payments and only pay the face value at maturity.II. Federal Government BondsA. Zero-Coupon Bonds: Treasury Bills: Mature within 1 yearB. Coupon Bonds:Treasury Notes: Mature within 1 to 10 yearsC. Treasury Bonds: Maturities greater than 10 yearsThe Coupon Rate is the APR used to determine each coupon payment of the bond. Coupon Payment = (����������∗���������)/(����������������������) These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.A. If a bond’s YTM = Coupon Rate, the bond price is equal to its face value. The bond is said to sell at par.B. If a bond’s YTM > Coupon Rate, the bond price is less than its face value. The bond is saidto sell at a discount.C. This means the bond is paying less interest than justified by market rates.D. If a bond’s YTM < Coupon Rate, the bond price is greater than its face value. The bond is said to sell at a premium.This means the bond is paying more interest than justified by market rate.A. The terms “selling at a premium” and “selling at a discount” are only descriptive. Similar bonds earn similar returns. B. New bonds are generally issued at par.C. Interest rates and bond prices always move in the opposite direction: as interest rates and bond yields rise, bond prices will fall.D. As bonds get closer to maturity their value gets closer to par value. There are less coupons remaining so coupons have less of an effect on the value of the