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Interest rate higher than coupon rate


interest rate higher than coupon rate

issued at par. If the general interest rate is 3 but the coupon is 5, investors rush to purchase the bond to achieve a higher return on their investment. If the market rate turns lower than a bond's coupon rate, holding the bond is advantageous as other investors may want to pay more than the face value for the bond's comparably higher coupon rate. Yield to Maturity, when investors buy a bond initially at face value and then hold the bond to maturity, the interest they earn on the bond is based on the coupon rate set forth at the issuance. This amount should be reported as the carrying value on each balance sheet date. It could be very possible that the bond's price does not accurately reflect the relationship between the coupon rate and other interest rates. The stated rate of interest is the rate at which interest is paid as specified in the bond indenture, whereas the effective rate of interest is the market rate that determines the prices at which the bonds are selling currently.

Bonds with higher coupon rates are more desirable for investors than those with lower coupon rates.
A yield to maturity higher than the coupon rate.
Interest Rates and Bond Pricing.
Interest rates are less than the coupon rate, the bond can be sold at a premium-higher than the face value.

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This yield changes as the value of the bond changes, thus giving the bond's yield to maturity. In contrast, when a bond is sold at a premium, the stated rate of interest is higher than the effective rate of interest. Because society6 coupon each bond returns its full par value to the bondholder upon maturity, investors can increase bonds' total yield by purchasing them at below-par prices, referred to as a discount. For example, a bond with a par value of 100 but traded at 90 gives the buyer a yield to maturity higher than the coupon rate. So we expect that the price of the bond to drop.


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