Business Case Studies & Business Publications

An Introduction to Zero-Coupon Risk-Free...

Schill, Michael J.

Technical Note

An Introduction to Zero-Coupon Risk-Free Bonds

Schill, Michael J.

F-1799 | Published July 14, 2017 | 3 pages Technical Note

Collection: Darden School of Business

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Product Details

This note introduces students to the basics of bonds and the time value of money through the simplest of financial contracts?the zero-coupon risk-free bond contract. The note covers the concepts of present value, yield to maturity, and bond pricing conventions. The note is appropriate as a companion for the Bond Trader simulation. A demo for this simulation is available at https://forio.com/simulate/darden/bond-trader-demo/.

1. Establish that a bond is worth the money required to replicate the promised payoff of the bond; 2. Expose students to bond math in a simple setting, including the concepts of annual rate of return, yield to maturity, and the inverse relation between bond prices and yields.