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Nominal value convergence one calls the characteristic of the courses of standard loans and similar securities to move toward the nominal value of the security.

With flat interest structure

If a flat interest structure prevails, then the course of a standard loan, which lies over pari, i.e. over its nominal value, tends progressively downward. On the day the value (=Kurs) corresponds to the maturity (T_n) to the loan exactly their nominal value. A fixed interest loan, which is under pari, tended progressively upward and meets there likewise at the day of maturity the nominal value.

With normal interest structure

If a normal (rising) interest structure prevails, then also the market interest rate sinks for this time interval with removing remaining time. (Firm) the coupon becomes more worth in relation the sinking market interest rate. Therefore the course of the fixed interest loan tends so long upward, until the effect of the nominal value convergence exceeds the coupon effect and the course of the loan sinks against the nominal value. That applies equally to loans over and under pari.

Articles in category "Nominal value convergence"

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