Question

Define coupon and market/effective interest rates as they determine bond pricing at par, premium, or discount values.

Answer 1

IPv The following is the sielation between the coupon rate price of bond & the effective interest rate (yield) • If coupon rate is more than yield the bond is worth more than its face values it selle at premium off coupon rate is dess than yield, the bond is less than its face value - it gells at discount • If coupon rate is easual to yield, the security is valued at face value. Is 556 463 447 coupon rate: coupon slate is the gate of interest paid by bond issuers on the bonds face value, It is the periodic rate of interest paid by bond issuesus to its purchasers. The coupon rate is calculated on the face value Corpar values of bond. For example if we have to year, $2000 bond with Coupon rate of 10%, we will get $200 every year for loyear, no matter what happens to the bond price in market Effective interest rate; - A Bonds effective interest rate is the rate that will discount the bonds future interest payments & its maturity value to the bond's current selling price. The effective interest rate is the bond investors yield to maturity. The It is also refened to as market interest . عله