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If two bonds have the same maturity the same yield to maturity and the same level of risk the bonds should they sell for the same price regardless of the bond's coupon rate?
Wiki User
∙ 13y ago
if two bonds offer the same duration and yield, then an investor should look at their levels of convexity. if one bond has greater convexity, it is less affected by interest rate changes. also, bonds with higher convexity will have higher price than bonds with lower convexity regardless whether interest rates rise or fall. Ergo, investors will have to pay more with greater convexity due to the bond's lesser sensitivity to interest rate changes.
Wiki User
∙ 13y ago
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When a bonds yield to maturity is greater than the bonds coupon rate the bond?
When the yield of a bond exceeds it coupon rate, the price will be below 'par' which is usually $100.
Why do bond prices and yields vary inversely?
Bonds are valued by discounting the coupon payments and the final repayment by the yield to maturity on comparable bonds. The bond payments discounted at the bond’s yield to maturity equal the bond price. You may also start with the bond price and ask what interest rate the bond offers. This interest rate that equates the present value of bond payments to the bond price is the yield to maturity. Because present values are lower when discount rates are higher, price and yield to maturity vary inversely.
11 Leggio Corporation issued 20-year 7 annual coupon bonds at their par value of 1000 one year ago Today the market interest rate on these bonds has dropped to 6 What is the new price of the bonds giv?
1,111.50 (Annual coupon)
List the key factors that influence the price on bonds in the secondary market?
Supply and demand,Expectations about interest rates and inflation,The bonds face value,The maturity date,The number of coupons remaining to be paid out before maturity.
Will a bond's yield to maturity increase or decrease if a bond 's price increases?
as yield to maturity increases the bonds price decreases, because a higher yield to maturity means its riskier to investors
When a bonds yield to maturity is greater than the bonds coupon rate the bond?
When the yield of a bond exceeds it coupon rate, the price will be below 'par' which is usually $100.
What one of these is not usually associated with bonds a coupon rate b maturity value c face amount d maturity rate?
Coupons, face amount, maturity value and maturity rate all are associated with bonds. Coupons are a type of bond and the face amount tells how much the coupon is worth until it matures, gaining interest.
How do bondholders get a return on zero coupon bonds?
Zero coupon bonds do not pay interest and are therefore sold at a steep discount to face value depending on the maturity date of the bond. Due to the time value of money, the discount on a 30 year zero coupon bond will be much greater than on a 10 year zero coupon bond. At maturity bondholders will receive the full face value of the bond which provides bondholders a return. For example, a 30 year zero coupon bond with a face value of $1,000 and sold for $500 would return a $500 profit after 30 years. Holders of zero coupon bonds can sell the bonds at any time before maturity. If an investor bought zero coupon bonds prior to a steep drop in interest rates, the value of the zero coupon bonds would increase and could be sold at a profit.
What are the basic components of bonds?
Coupon - periodical cash payment Corpus or Face Value - amount paid at maturity
What are the different types of yields on bonds?
* yield to worst (to maturity or to call date) * current yield * coupon yield
What is non-zero coupon bonds?
if a bond has finite maturity or limited maturity then we must consider not only the interest rate stream but also the maturity value (face value).regardsSajida Gul
What is the advantage of buying zero-coupon bonds?
The advantage of buying zero-coupon bonds is that when they reach maturity, the investor then receives the full face value of the bond. These bonds became popular in the 1980's even though they were first released in the 1960's.
Why does maturity date change?
It changes when the issuer does not have the money to pay back the principal and wants to still give out coupon on the bonds.
Yest Corporation's bonds have a 15 year maturity a 7 percent semiannual coupon and a par value of 1000?
$10008.65
If a bond's yield to maturity exceeds its coupon rate does the bond's current yield must also exceed its coupon rate?
No......The price of the bonds will be less than par or 1,000.....
What is so special about Zero Coupon Municipal Bonds?
Zero Coupon Municipal Bonds are special because, unlike other bonds, they have no periodic interest payments. Rather, the investor receives one payment at maturity. This payment is equal to the amount invested, plus the interest earned, compounded semiannually.
What is the taxation of zero coupon bonds held to maturity?
Zero coupon bonds issued by the US Treasury are issued at a discount to face value. An investor holding zero coupon bonds is paid the full face value when the zero coupon bond matures. The difference between the purchase price and the maturity value is know as the original issue discount which represents the interest earned on the zero coupon bond. Although a zero coupon bond does not pay annual interest, an investor must pay taxes each year based on the imputed receipt of income. Since the investor is not receiving interest payments during the life of the bond, taxes would be paid on interest income not actually received until bond maturity. Due to the yearly tax liability on imputed interest, it makes sense for most investors to hold zero coupon bonds in a tax deferred retirement account. The interest earned on zero coupon bonds issued by the US Treasury are exempt from state and local taxes.
