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The actual interest rate, however, determined at auction, is referred to as the market rate. The market rate may equal the stated rate, or it may be higher or lower.
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When market interest rates exceed a bond's coupon rate the bond will?
When market interest rates exceed a bond's coupon rate, the bond will:
If the inflation premium for a bond goes up the price of the bond?
The price of the bond decreases; the inflation premium would increase the market interest rate, which in bond valuation is located in the denominator, and the coupon payment rate is located in the numerator. When calculating the NPV of future coupon payments, as the denominator or market interest rate + inflation premium increases, the Net Present Value of future coupon payments decreases and the overall value of the bond decreases as well. The price of the bond decreases; the inflation premium would increase the market interest rate, which in bond valuation is located in the denominator, and the coupon payment rate is located in the numerator. When calculating the NPV of future coupon payments, as the denominator or market interest rate + inflation premium increases, the Net Present Value of future coupon payments decreases and the overall value of the bond decreases as well.
What occurs when a bonds stated interest rate is less than the market interest rate?
Since the current market interest rate is higher, it is more attractive to a new investor then the bond with a lower interest rate. Thus, the price of the lower interest rate bond has to decline to be competitive with new bonds in the market.
What is floating rate bond?
A floating rate note (FRN) is a bond whose coupon (interest) goes up and down with market rates.
What factors may cause a change in the market and fair value of fixed rate notes and bonds?
One of the key factors that can change the market and fair value of fixed rate notes and bonds is an increase or decrease in market interest rates. Even though a bond has a fixed rate, it's value is dependent on current yields in the market and the value of the bond will move inversely to interest rate changes.
What is market rate of bond?
Market rate of bond is that rate at which that bond will be sale in market and it is different from face value of bond as well as book value of bond.
What are Bond Premiums and Discounts?
Bond premiums refer to bonds that are issued at a price above its face value. for example, if the market rate for a bond is 8% and the stated rate on the bond is 9% then it would be a premium bond. Bond discounts refer to bonds that are issued at a price below its face value. For example, if the market rate for a bond is 9% and the stated rate on the bond is 10%, then it would be a discount bond.
When market interest rates exceed a bond's coupon rate the bond will?
When market interest rates exceed a bond's coupon rate, the bond will:
What occurs when a bond's stated interest rate is less than the market interest rate?
Since the current market interest rate is higher, it is more attractive to a new investor then the bond with a lower interest rate. Thus, the price of the lower interest rate bond has to decline to be competitive with new bonds in the market.
What does the R157 capital market bond rate indicate?
This indicates the rate at which the R157 bond is trading. This rate however is used frequently to describe the Risk Free Rate of Return for the market, which is required for CAPM calculations.
What happens if interest rate of bond is decrease?
Well... that would happen when the 'Market' looses confidence in itself but NOT on the government. Lower bond rate would basically mean that government can borrow easily ( some times gain, after adjusting for inflation) while in general it would be difficult to for the "market" to do so.
If the inflation premium for a bond goes up the price of the bond?
The price of the bond decreases; the inflation premium would increase the market interest rate, which in bond valuation is located in the denominator, and the coupon payment rate is located in the numerator. When calculating the NPV of future coupon payments, as the denominator or market interest rate + inflation premium increases, the Net Present Value of future coupon payments decreases and the overall value of the bond decreases as well. The price of the bond decreases; the inflation premium would increase the market interest rate, which in bond valuation is located in the denominator, and the coupon payment rate is located in the numerator. When calculating the NPV of future coupon payments, as the denominator or market interest rate + inflation premium increases, the Net Present Value of future coupon payments decreases and the overall value of the bond decreases as well.
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%).
What occurs when a bonds stated interest rate is less than the market interest rate?
Since the current market interest rate is higher, it is more attractive to a new investor then the bond with a lower interest rate. Thus, the price of the lower interest rate bond has to decline to be competitive with new bonds in the market.
What occurs when a bond's stated interest rate is greater than the market interest rate?
The bond's price will be in premium, meaning exceed 100
What is floating rate bond?
A floating rate note (FRN) is a bond whose coupon (interest) goes up and down with market rates.
What is a variable rate bond?
Could somebody who knows a lot about the stocks and bonds etc. answer these question 1. what is a variable-rate bond and a treasury bond future contract 2 what is example of a money market instrument use in the market place. oh one more thing If I buy a bond with the face value of 1000.00 and the coupon rate is of 6%. and I sold it one year later for 930.00 what would be my yield rate at maturity. thanks for all your help
