What is the meaning of bond coupon rate

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Bond Price

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This is because a bond's price is not based on the par value of the bond.

Definition of Bond Discount Rate | Pocketsense

Instead, the bond's price is established in the secondary market and fluctuates. As a result, the price may be more or less than the amount of principal and the remaining interest the issuer would be required to pay you if you held the bond to maturity.

If a bond trades above par, it is said to trade at a premium. If a bond trades below par, it is said to trade at a discount.

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For example, if the bond you desire to purchase has a fixed interest rate of 8 percent, and similar-quality new bonds available for sale have a fixed interest rate of 5 percent, you will likely pay more than the par amount of the bond that you intend to purchase, because you will receive more interest income than the current interest rate 5 percent being attached to similar bonds.

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Bond Basics. What's a Bond?

Callable Bonds Not all bonds reach maturity, even if you want them to. Bond Coupons A bond's coupon is the annual interest rate paid on the issuer's borrowed money, generally paid out semiannually.

coupon rate

The Power of Compounding Regardless of the type of investment you select, saving regularly and reinvesting your interest income can turn even modest amounts of money into sizable investments through the remarkable power of compounding. Accrued Interest Accrued interest is the interest that adds up accrues each day between coupon payments. The price of a bond can be above or below its par value for many reasons, including: interest rate adjustments to the bond; whether a bond credit rating has changed; supply and demand; a change in the creditworthiness of a bond's issuer; whether the bond has been called or is likely to be or not to be called; or, a change in the prevailing market interest rates.

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Coupon Rate and Yield to Maturity