:

Pls explain bond terminology

Someone asked for help with a financial problem. Generally, I know how to solve the problem. But some of the terminology does not jibe with my (weak) understanding of bond terminology.
The facts of the user's problem as stated: "A corporate bond has a face value of $1000 and an annual coupon interest rate of 6%. Interest is paid annually. 12 years of the life of the bond remain. The current market price of the bond is $1027, and it will mature at $1100."
What does not make sense to me is "face value of $1000" v. "will mature at $1100".
The wiki/Face_value page [1] says: "The face value of bonds usually represents the [...] redemption value. [....] As bonds approach maturity, actual value approaches face value".
I thought "redemption value" is the amount to be paid at maturity (plus any accrued interest).
But the wiki/Redemption_value[2] cites a
formatting link
page [3], which says: "The Redemption Value is [...] the price at which a bond [...] can be called by the issuing company. [....] The call price before its maturity date typically exceeds the Face Value of the bond".
That would suggest that the redemption value is __not__ the face value. (?!)
(Then again, I thought call price and redemption value are two separately-stated terms of a bond.)
Moreover, the
formatting link
page defining face value [4] says: "Corporate Bonds are usually issued with $1000 face values [...]. [....] Interest on a bond is calculated on this value; for example a $1000, 7% corporate bond, will pay an annual interest of $70."
So for the bond terms in the user's problem above, would the YTM be the IRR of the following annual cash flows: -1027, 60 {11 times}, 60+1100?
(I thought the interest coupon would be $66: 6% of $1100.)
Compounding my confusion is the fact that the
formatting link
"face value" page [2] also says: "Although the price of bonds fluctuates from the date they are issued until redemption, they are redeemed at their Maturity date at their Face Value, unless the issuer defaults".
For user's problem above, that would suggest that $1000, not $1100, is the amount that the bond will "mature at", contrary to the facts of the problem above. (?!)
Can anyone clarify the terms "face value", "redemption value" and "value at maturity" so they are consistent with the cited definition as well as the user's problem above?
Or is one (or both) misusing the terminology?
The bottom line is: how to compute the YTM based on the facts of the user's problem?
I know that the YTM is the IRR of "some" cash flows. But the individual cash flows are unclear to me because I am confused about the terminology.
----- [1]
formatting link
[2]
formatting link
[3]
formatting link
[4]
formatting link

Reply to
joeu2004
[....]
Not at all. The two together suggest that the redemption value is the face value if the bond is redeemed at maturity; otherwise, the redemption value is the call price if the bond is called earlier.
The point I was trying to make is: I am confused by the fact that the user's problem statement says: on the one hand, the bond's face value is $1000; but on the other hand, the (redemption) value at maturity is $1100.
It is __those__ statements that suggest the term "face value" is not the same as the term "value at maturity", seemingly in contrast with the wiki and
formatting link
definitions above.
Again, the point of all this, besides improving my understanding of the terminology, is to determine the YTM. Obviously, the present value is $1026. Presumably the future value is $1100. The question is: what is the coupon amount: $60 (6% of the face value of $1000) or $66 (6% of the value at maturity of $1100)?
Reply to
joeu2004

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.