A Seasoned Instructors New Look At Fixed-Income Securities: An Exercise Using Discounted Bonds

Abstract

Having returned to teaching the basics of pricing fixed-income securities after several years, the author recalls the difficulty students have in understanding the total return provided by fixed-income securities that are purchased at either a discount or premium from face value.This teaching note attempts to clarify the concept by suggesting that separation of the return provided by coupon payments from the return provided by periodic changes in the fair market value may aid in student understanding.The integration of financial calculators in the classroom improves and simplifies this process for seasoned instructors.