What are the main factors that affect the coupon rate?
I am also confusing the term yield to maturity and coupon rate? how do they relate, are they the same thing?
Posted on February 16, 2010 at 1:52 pm by admin · Permalink
In: Coupon Q&A · Tagged with: coupon rate, yield to maturity
In: Coupon Q&A · Tagged with: coupon rate, yield to maturity
on February 16, 2010 at 1:52 pm
Permalink
Coupon rate and YTM will be the same if you bought the bond at face value. However, they will differ depending on the price of the bond, e.g. if you hold a bond which you bought at par (USD 1,000) that pays 10% annualy and its price decreased to USD 850, YTM will be 11.765%. However, if the price of the bond increased to USD 1,150, YTM will be 8.696%.
I hope this helps.
A.Rahman
on February 16, 2010 at 1:52 pm
Permalink
coupon rate is as stated on the bond, this is the amount of annual interest the bond pays
yield to maturity would be the same as coupon rate only if bond is bought at par or $1000.
if bond bought below par, yield-to-maturity is higher than coupon rate, it is the additional yield you will get from increased principal when bond matures.
if you buy a bond above par YTM will be less than coupon rate.