###### Asked in Bonds and TreasuriesCoupons

Bonds and Treasuries

Coupons

# Is the coupon rate or yield rate paid on a bond?

## Answer

###### Wiki User

###### May 14, 2008 4:43AM

Coupon rate

## Related Questions

###### Asked in Bonds and Treasuries, Coupons

### Difference between coupon rate and yield to maturity?

The coupon rate is the actually stated interest rate. This is
the rate earned on a NEW issue bond. The yield to maturity takes
into consideration the purchase price of a bond bought in the
secondary market. For example, if you buy a $1,000 bond for $1100
which matures in 10 years and has a coupon of 5%, your coupon is
5%, but your yield to maturity would be closer to 4% because you
paid $1100, but will only get back $1,000 at maturity (losing
$100). The "loss" reduces the return.

###### Asked in Interest Rates

### The interest rate on a bond is called?

The interest payment is called the "coupon" and it is usually a
fixed amount per year, which is set when the bond is issued. But
when you buy a bond on the market for a price that is different
from the original face value, the effective interest rate is called
the "yield". The reasons why the yield might be different from the
coupon rate are described in the related link called Bond yields
and coupon.

###### Asked in Investing and Financial Markets, Home Equity and Refinancing, Economics, Bonds and Treasuries

### What are the factors that influence the bond interest rates or prices?

1, bond price move inversely to interest rate 2. a decrease in
yield results in a larger change in price than increase in yield 3.
change in yield, long term bond price changed more than the short
term bond 4. bond price increases with maturity at a diminishing
rate 5. for a given change in yield, bond price with low coupon
rate will change more than the bond price with high coupon
rate.

###### Asked in Economics, Bonds and Treasuries, Coupons

### How does the yield to maturity on a bond differ from the coupon yield or current yield?

The rate of return anticipated on a bond if held until the end
of its lifetime. YTM is considered a long-term bond yield expressed
as an annual rate. The YTM calculation takes into account the
bond's current market price, par value, coupon interest rate and
time to maturity. It is also assumed that all coupon payments are
reinvested at the same rate as the bond's current yield. YTM is a
complex but accurate calculation of a bond's return that helps
investors compare bonds with different maturities and coupons.

###### Asked in Bonds and Treasuries

### When the market rate of return for a particular bond is much less than its coupon rate the bond is selling at?

If the current interest rate is lower than the coupon rate, a
bond will be priced at a premium. For example, a bond originally
issued at par with a 5% coupon would initially yield 5% to an
investor. If market rates subsequently dropped to 3%, the bond
would be selling at a premium to reflect the lower interest rate.
In this example, the original bond sold for $1,000 and had a coupon
rate of 5% to yield $50 per year in interest. If interest rates
dropped to 3%, the price of the bond would increase to
approximately $1,667. A purchaser of the bond would still receive
$50 per year in interest which would provide an annual yield of 3%
($50/$1,667 = 3.0%).

###### Asked in Investing and Financial Markets, The Difference Between

### What is the difference between rate and yield?

Rate is the specified interest rate paid on a financial
instrument (such as a bond). The interest is calculated by applying
the rate to the face value of the instrument. The yield is
calculated by dividing the interest amount received by the price
paid for the investment, and the time held. So, if you bought a
bond at a discounted price (below the face value), your yield would
be higher than the rate. You buy a bond on Jan 1 with a face value
of $1,000 and a stated rate of 5% (annual interest payment) at the
discounted price of $950. On Dec 31, you receive $50 in interest
(1,000 x 5%) which gives you a 5.26% yield (50/950). Or, if you
bought a bond for face value close to the coupon date, your yield
would be higher than the rate. On July 1, you pay the face value of
$1,000 for a bond with a stated rate of 5% and which matures on
12/31. You receive $1,050 , a $50 yield for 6 mos., for a 10%
annual yield.

###### Asked in Economics

### What is book yield?

The "book yield" is a measure of a bond's recurring realized
investment income that combines both the bond's coupon return plus
its amortization. It is defined as the bond's Internal Rate of
Return (IRR) of all its cash flows. The following example
illustrates the concept of book yield. A $100 par bond having a 5%
coupon to be paid annually at year end is purchased for a $95
purchase price at the beginning of the year. The bond is set to
mature in three years. In this example, the book yield will be
greater than the 5% coupon on the discount bond as the investor
will receive both the 5% coupon and the difference between purchase
price and maturity value (an additional $5). The book yield at
purchase will be 6.90%, which is the internal rate of return or IRR
of the cash flows. The $5 discount is amortized into income over
the life of the bond and the book value of the bond is increased
until it reaches its par value of $100 at maturity.

###### Asked in Bonds and Treasuries

### 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.

###### Asked in Economics, Coupons

### What is usually a better investment- a coupon bond or discount bond?

Coupon bond= pay $A now. receive future periodic coupon and at
maturity receive face value
Discount bond= pay $B now. receive nothing until maturity where
you receive face value.
B is always less than A. That is, you pay less upfront investing
in Discount Bond compared to Coupon Bond. But, you don't receive
periodic cash flow by investing in Discount Bond.
So clearly which is better depends on how much money you have at
present and your expectation of future interest rate (going up or
down).
If you expect interest rate/yield to go down in the future, then
clearly you don't want to be sitting on a pile of money and earn
meager interest on it. This is called re-investment risk. You risk
having unfavorable interest rate to re-invest the cash flow
(coupon) you'll get in future. In this case, locking in the current
interest rate/yield by buying discount bond is preferable.
The same logic apply if you expect interest rate/yield is going
to rise, in which case buying a coupon bond is preferable since you
can re-invest the cash flow (coupon) you'll get in future at a
higher rate. You can't do so with Discount Bond coz you receive no
payment and the interest/yield is locked.