Question

How many types of Credit Market Instruments? Explain . Discuss the yield to maturity on a sample loan with example?

Answer 1

Types of credit market instruments

Simple Loan

which we have already discussed, in which the lender provides the
borrower with an amount of funds, which must be repaid to the lender at the maturity date along with an additional payment for the interest. Many money market.

Fixed Payment Loan

(which is also called a fully amortized loan) in which the lender provides the borrower with an amount of funds, which must be repaid by making the same payment every period (such as a month), consisting of part of the principal and interest for a set number of years.

coupon bond

A coupon bond pays the owner of the bond a fixed interest payment (coupon payment) every year until the maturity date, when a specified final amount (face value or par value) is repaid. (The coupon payment is so named because the bondholder
used to obtain payment by clipping a coupon off the bond and sending it to the bond issuer, who then sent the payment to the holder.

Discount Bond

A discount bond (also called a zero-coupon bond) is bought at a price below its face value (at a discount), and the face value is repaid at the maturity date. Unlike a coupon bond, a discount bond does not make any interest payments; it just pays off the face value.

Yield to maturity

Yield to maturity (YTM) is the total return anticipated on a bond if the bond is held until it matures. Yield to maturity is considered a long-term bond yield, but is expressed as an annual rate.