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.
The interest rate that the bond issuer pays to the bondholder is called the "coupon rate." This rate is expressed as a percentage of the bond's face value and determines the periodic interest payments that the bondholder receives until maturity. The coupon payments are typically made semiannually or annually.
Effective rate.
Bonds have a predetermined rate of interest called the stated or contract rate, which is established by the board of directors.
When the market rate of interest is equal to the stated rate of interest on a bond, the bond will trade at its par value, or face value. This means that investors are willing to pay the full amount for the bond because the yield they would receive from the bond matches the current market rate. Consequently, there is no premium or discount applied to the bond's price.
The bond's price will be in premium, meaning exceed 100
The interest rate paid on a bond is known as the coupon rate. A $1,000 fixed rate bond with a 5% coupon rate purchased at par would yield $50 annually in interest payments.
The interest rate that the bond issuer pays to the bondholder is called the "coupon rate." This rate is expressed as a percentage of the bond's face value and determines the periodic interest payments that the bondholder receives until maturity. The coupon payments are typically made semiannually or annually.
Effective rate.
Bonds have a predetermined rate of interest called the stated or contract rate, which is established by the board of directors.
When market interest rates exceed a bond's coupon rate, the bond will:
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.
It is also called variable rate or adjustable rate. It does not have a fixed interest rate over the life of any of these debt instrument: loan, bond, mortgage, or credit.
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.
When the market rate of interest is equal to the stated rate of interest on a bond, the bond will trade at its par value, or face value. This means that investors are willing to pay the full amount for the bond because the yield they would receive from the bond matches the current market rate. Consequently, there is no premium or discount applied to the bond's price.
"Yield" or "YTM" ("Yield to Maturity")
If you are investing in a savings bond, you wish for it to have a high rate of interest. If you are selling savings bonds, you wish it to be at a low rate of interest.
The bond's price will be in premium, meaning exceed 100