The four major types of instruments that you are likely to encounter include discount coupon bonds, simple loans, fixed-payment loans, and coupon bonds. A discount bond (aka a zero coupon bond or
simply a zero) makes only one payment, its face value on its maturity or redemption date, so its price is easily calculated using the present value formula. A simple loan is the name for a loan where the borrower repays the principal and interest at the end of the loan. Use the future value formula to calculate the sum due upon maturity. A fixed-payment loan (aka a fully amortized loan) is one in which the borrower periodically (for example, weekly, bimonthly, monthly, quarterly, annually, etc.) repays a portion of the principal along with the interest. With such loans, which include most auto loans and home mortgages, all payments are equal. There is no big balloon or principal payment at the end because the principal shrinks, slowly at first but more rapidly as the final payment grows nearer.
Finally, a coupon bond is so-called because, in the past, owners of the bond received interest payments
by clipping one of the coupons and remitting it to the borrower (or its paying agent, usually a
bank).
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