Timeline for What does it mean by "A one period bond is a claim to a unit payoff." from Cochrane?
Current License: CC BY-SA 4.0
9 events
| when toggle format | what | by | license | comment | |
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| Oct 30, 2019 at 20:06 | vote | accept | Aqqqq | ||
| Oct 29, 2019 at 9:52 | comment | added | Dimitri Vulis | (Separate question, really) Lots of possible motivations. For example, the bond buyer might hope that a central bank (as economic stimulus) would buy the bond before its maturity at an even higher price . | |
| Oct 28, 2019 at 15:46 | comment | added | Aqqqq | If P>1, why would someone buy such a bond if they essentially paid more for getting less at a later point in time? | |
| Oct 27, 2019 at 22:57 | comment | added | Dimitri Vulis | The bond investor pays P for the bond and later receives 1 from the bond issuer. | |
| Oct 27, 2019 at 22:03 | comment | added | Aqqqq | "You sound like you wanted to assume the bond price to always be 1" because I thought that principal is paid back at the end of period 1, since it is a one-period bond. If the bond issuers do not pay the principal back at the end of period 1, when will they pay the principal back? | |
| Oct 27, 2019 at 17:45 | comment | added | Dimitri Vulis | Yes, the principal (notional, face value) is promised to be repaid in a predictable way (if the bond issuers keep their promise to pay back). We can assume the repayment to be \$1 for convenience. You might then plan, "I need \$X at the end of the period, so I will spend \$P on bonds". The price \$P that you pay to buy the bond in the market is generallly not exactly the same amount that is promised to be repaid (but is usually close, like 99.1%). You sound like you wanted to assume the bond price to always be 1, which isn't right. | |
| Oct 27, 2019 at 15:33 | comment | added | Aqqqq | But it is a one-period bond. Wouldn't the principal also be paid back? Also I think it makes a general statement here instead of referring to a specific bond, so why the payoff has to be one unit of currency? | |
| Oct 27, 2019 at 12:56 | history | edited | Dimitri Vulis | CC BY-SA 4.0 |
added 6 characters in body
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| Oct 27, 2019 at 12:47 | history | answered | Dimitri Vulis | CC BY-SA 4.0 |