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How can bonds issued by two companies paying same contractual interest rate be issued at different prices?
Wiki User
∙ 16y ago
To calculate present value of the bond you also need to know market interest rate. If , for example these companies were issuing their bonds in the different time and market interest rate was different then bond could be sold at premium(the bond will cost more then its face value), par (same as face value), and discount (bond will cost less then face value.)
Wiki User
∙ 16y ago
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What is the difference between the coupon rate and the interest rate?
Coupon rate is something that is paid semiannually. The interest rate is something that starts as soon as a bond is issued.
Are interest rate and coupon rate the same?
Actually they mean the same thing but they are used in two totally different situations. Interest Rate is the money paid by a bank that has accepted a deposit from a Customer. Coupon Rate is the money paid by a person who has issued Bonds to people in return for the money they have given him.
Explain why an expectation of Central Bank official rate hikes would cause bond price to fall?
The price of bonds is inversely related to interest rates. If interest rates rise, the value of existing bonds will decline since the coupon rate available on newly issued debt will be higher due to the increase in interest rates. The price of existing bonds will drop in price until the bond provides a yield similar to comparable newly issued debt.
What are the contract rate and the market rate for bonds?
Contract rate is known as a coupon rate (because older securities actually had coupons that were clipped and sent to paying banks for periodic interest). It is the fixed rate of interest for which a particular bond was issued. Market rate is actually known as yield (prevailing interest rate for new bonds) and yields change with prevailing interest rates. Yields are closely aligned with prevailing interest rates.
What are the determinants of market interest rates?
rd - Quoted or nominal rate of interest on a given security. there are many different securities, hence many different quoted interest rates.r* - real risk-free rate of interest, which represents the rate that would exist on a riskless security if zero inflation were expected.IP - Inflation premium is equal to the average expected inflation rate over the life of the security. The expected future inflation rate is not necessarily equal to the current inflation rate, so IP is not necessarily equal to current inflation.rRF - r* + IP and it is the quoted risk-free rate of interest on a security such as U.S. Treasury bill, which is very liquid and also free of most risks.DRP - default risk premium reflects the possibility that the issuer will not pay interest or principal at the stated time and in the stated amount. DRP rises as the riskiness of issuers increases.LP - Liquidity premium that is charged by lenders to reflect the fact that some securities can't be converted to cash on short notice at "reasonable" price. LP is very low for Treasury securities and for securities issued by large strong firms, but it is relatively high on securities issued by small firms.MRP - Maturity risk premium is charged by lenders to reflect the risk of price declines.
What is feature of letter of credit?
Answer this question...it is a contractual promise issued by a bank. it is use as a means for payment in international trade
Which Indian companies recently issued debentures?
recently which industry/company had issued its debentures
Which Indian companies have recently issued debentures?
recently which industry/company had issued its debentures
Which are the companies that have issued debent ures in recent years?
company who have issued recently deventures
What is gilt edged securities market?
Gilt-edged securities are a high-grade investment with very low risk. Typically, these are issued by blue chip companies that dependably meet dividend or interest payments because they are well-established and financially stable .-jaizal
What is the difference between bond and debenture?
BONDS DEBENTURES *bonds are more secure . * It is UN secure loan you offer to a company *bonds are non convert able * easy conferable . . * low interest paid to BH. * higher interest to DH. * Issued by public companies * Issued by private sector . * bond is long term debt instrument . * short term debt instrument .
What is contractual bond?
A "contract" bond is a guarantee that has been issued by an insurance company. The contract bond guarantees that the "contractor" will perform a service according to the specifics of a contract.
What banks provide high interest bonds to customers?
High interest bonds are not issued by banks; they are issued by corporations that do not meet the standards of an investment-grade bonds. Like stocks, they are a corporate investment.
When the interest payment dates are March 1 and September 1 and notes are issued on July 1 the amount of interest expense to be accrued at December 31 of the year of issued would be for how long?
10 months
How are interest on a bond calculated?
Know the bond's face value, then, find the bond's coupon interest rate at the time the bond was issued or bought, then, multiply the bond's face value by the coupon interest rate it had when issued, then, know when your bond's interest payments are made, finally, multiply the product of the bond's face value and interest rate by the number of months in between payments.
A note issued by the government which promises to pay off a loan with interest?
its a Bond.
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.
