What does coupon rate of a bond mean

What does coupon rate of a bond mean

Bond Points Definition from Financial Times Lexicon

This compensates investors for the difference between the coupon rate and the market rate.In the market for United States Treasury securities, there are three categories of bond maturities.Some structured bonds can have a redemption amount which is different from the face amount and can be linked to performance of particular assets.


Some ultra-long-term bonds (sometimes a bond can last centuries: West Shore Railroad issued a bond which matures in 2361 (i.e. 24th century) are virtually perpetuities from a financial point of view, with the current value of principal near zero.Build America Bonds (BABs) are a form of municipal bond authorized by the American Recovery and Reinvestment Act of 2009.These bond issues are generally governed by the law of the market of issuance, e.g., a samurai bond, issued by an investor based in Europe, will be governed by Japanese law.It can also vary with a money market index, such as LIBOR, or it can be even more exotic.

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In a bankruptcy involving reorganization or recapitalization, as opposed to liquidation, bondholders may end up having the value of their bonds reduced, often through an exchange for a smaller number of newly issued bonds.Interest can be paid at different frequencies: generally semi-annual, i.e. every 6 months, or annual.Bonds are also subject to various other risks such as call and prepayment risk, credit risk, reinvestment risk, liquidity risk, event risk, exchange rate risk, volatility risk, inflation risk, sovereign risk and yield curve risk.

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However, as with municipal bonds, the bond is tax-exempt within the US state where it is issued.Serial bond is a bond that matures in installments over a period of time.Contrary to asset-backed securities the assets for such bonds remain on the issuers balance sheet.The market price of a tradable bond will be influenced, amongst other factors, by the amounts, currency and timing of the interest payments and capital repayment due, the quality of the bond, and the available redemption yield of other comparable bonds which can be traded in the markets.A bond with a coupon rate of 7% makes semiannual coupon payments on January 15 and July 15 of each year.One way to quantify the interest rate risk on a bond is in terms of its duration.Bearer bond is an official certificate issued without a named holder.

However, as the principal amount grows, the payments increase with inflation.High-yield bonds are bonds that are rated below investment grade by the credit rating agencies.Bearer bonds are very risky because they can be lost or stolen.

Chapter 10: Reporting and Interpreting Bonds

An alternative process for bond issuance, which is commonly used for smaller issues and avoids this cost, is the private placement bond.

The annual interest rate paid on a bond, expressed as a percentage of the face value.The coupon rate is the yield the bond paid on its issue date.The bookrunner is listed first among all underwriters participating in the issuance in the tombstone ads commonly used to announce bonds to the public.The name derives from the famous Russian wooden dolls, Matrioshka, popular among foreign visitors to Russia.The main examples of subordinated bonds can be found in bonds issued by banks, and asset-backed securities.

Some bonds have been issued with terms of 50 years or more, and historically there have been some issues with no maturity date (irredeemable).

What Is Duration of a Bond? - TheStreet Definition

Yield, Duration and Ratings of Bonds - InvestorGuide.com

They buy the bonds to match their liabilities, and may be compelled by law to do this.Again, some of these will only affect certain classes of investors.Masala bonds an Indian rupee denominated bond issued outside India.The maturity can be any length of time, although debt securities with a term of less than one year are generally designated money market instruments rather than bonds.

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3 Ways to Calculate Annual Interest on Bonds - wikiHow

Interest is paid as on a traditional fixed rate bond, but the issuer will redeem randomly selected individual bonds within the issue according to a schedule.These are known as hybrid securities, because they combine equity and debt features.In finance, a bond is an instrument of indebtedness of the bond issuer to the holders.

Help About Wikipedia Community portal Recent changes Contact page.That relationship is the definition of the redemption yield on the bond, which is likely to be close to the current market interest rate for other bonds with similar characteristics. (Otherwise there would be arbitrage opportunities.) The yield and price of a bond are inversely related so that when market interest rates rise, bond prices fall and vice versa.The 2 best-known agencies that rate bonds are Standard. meaning that the coupon and face value portions of the.

An exception is an irredeemable bond, such as a consol, which is a perpetuity, that is, a bond with no maturity.The yield is the rate of return received from investing in the bond.Municipal bond is a bond issued by a state, U.S. Territory, city, local government, or their agencies.Thus a bond is a form of loan or IOU: the holder of the bond is the lender (creditor), the issuer of the bond is the borrower (debtor), and the coupon is the interest.A variation are stepped-coupon bonds, whose coupon increases during the life of the bond.This creates reinvestment risk, meaning the investor is forced to find a new place for their money, and the investor might not be able to find as good a deal, especially because this usually happens when interest rates are falling.Exchangeable bonds allows for exchange to shares of a corporation other than the issuer.

Most indices are parts of families of broader indices that can be used to measure global bond portfolios, or may be further subdivided by maturity or sector for managing specialized portfolios.There is no guarantee of how much money will remain to repay bondholders.How does collateral effect coupon rate of a. to buy your bonds.