Table of Contents
When the required rate of return on a bond is less than the bond’s coupon interest rate the bond?
premium
How do maturity coupon rate and yield to maturity affect bond duration?
Duration is inversely related to the bond’s coupon rate. Duration is inversely related to the bond’s yield to maturity (YTM). Duration can increase or decrease given an increase in the time to maturity (but it usually increases). You can look at this relationship in the upcoming interactive 3D app.
What is the relationship between the current yield and YTM for premium bonds for discount bonds for bonds selling at par value?
For premium bonds, the current yield exceeds the YTM; for discount bonds the current yield is less than the YTM; and for bonds selling at par value, the current yield is equal to the YTM.
When the market interest rate is less than a bond’s coupon rate?
When interest rates are less than the coupon rate, the bond can be sold at a premium–higher than the face value. A bond’s interest rate is related to the current prevailing interest rates and the perceived risk of the issuer. Let’s say you have a 10-year, $5,000 bond with a coupon rate of 5%.
When pricing bonds if a bond’s coupon rate is less than the required rate of return then?
Yield to maturity (YTM) [(Face value/Present value)1/Time period]-1. If the YTM is less than the bond’s coupon rate, then the market value of the bond is greater than par value ( premium bond). If a bond’s coupon rate is less than its YTM, then the bond is selling at a discount
When a bond’s yield to maturity is less than the bond’s coupon rate the bond?
If a bond’s yield to maturity is less than the bond’s coupon rate, it means the market value of the issued bond is above the par value. The issued bond thus becomes a premium bond.
When the market rate of interest is greater than the coupon rate the bond will sell at a discount?
If the market interest rate for a bond is higher than the stated interest rate, the bond will sell at discount. The price of a bond is the discounted value of the coupon payments and the par value that the issuer remits to the bondholder. The yield to maturity is another name for the market interest rate.
How maturity yield to maturity and coupon rates affect the duration of a security?
Duration is inversely related to the bond’s coupon rate. Duration is inversely related to the bond’s yield to maturity (YTM). Duration can increase or decrease given an increase in the time to maturity (but it usually increases).
How does yield to maturity affect duration?
If the coupon and yield are the same, duration increases with time left to maturity. If the maturity and yield are the same, duration increases with a lower coupon. If the coupon and maturity are the same, duration increases with a lower yield.
What may be the relationship between the yield to maturity coupon rate and the duration?
If an investor purchases a bond at par or face value, the yield to maturity is equal to its coupon rate. If the investor purchases the bond at a discount, its yield to maturity will be higher than its coupon rate. A bond purchased at a premium will have a yield to maturity that is lower than its coupon rate.
Why does duration decrease when YTM increases?
When the bond yield is high, the coupon payments (which occur sooner than the maturity payment) are larger relative to the final payment so their effect on the weighted average is larger, reducing the overall duration.
What is the relationship between YTM coupon rates and bond prices premium and discount bonds?
If the coupon rate is lower than the required return on a bond, the bond will sell at a discount, since it provides insufficient coupon payments compared to that required by investors on other similar bonds. For premium bonds, the coupon rate exceeds the YTM; and for discount bonds, the YTM exceeds the coupon rate.
What will be the relationship among coupon rate current yield and yield to maturity for bonds selling at discounts from par?
If an investor purchases a bond at par or face value, the yield to maturity is equal to its coupon rate. If the investor purchases the bond at a discount, its yield to maturity will be higher than its coupon rate. A bond purchased at a premium will have a yield to maturity that is lower than its coupon rate.
Why is the YTM of a discount bond greater than the bond’s current yield?
Why is the YTM of a discount bond greater than the bond’s current yield? The current yield does not include the capital gain from the price discount. Which of the following spreadsheet functions can be used to calculate the YTM on a bond paying 5% annual coupons with $1,000 par value if the bond costs $943.82?
What is the relationship between a bond’s price and its term to maturity when the bond’s coupon rate is equal to its yield to maturity?
When a Bond’s Yield to Maturity Equals Its Coupon Rate If a bond is purchased at a discount, then the yield to maturity is always higher than the coupon rate.
What happens if coupon rate is less than market rate?
If the market interest rate for a bond is higher than the stated interest rate, the bond will sell at discount. The price of a bond is the discounted value of the coupon payments and the par value that the issuer remits to the bondholder. The yield to maturity is another name for the market interest rate.
When the going rate of interest is below the coupon rate?
The coupon rate on a bond vis-a-vis prevailing market interest rates has a large impact on how bonds are priced. If a coupon is higher than the prevailing interest rate, the bond’s price rises; if the coupon is lower, the bond’s price falls
When a bond’s coupon rate is less than its discount rate?
If the general interest rate then falls below the coupon rate, the bond will command a premium because its yield at par would be higher than the prevailing interest rate. The converse also applies. Suppose after two years, the interest rate on bonds of 8-year maturity is 5%.
When the required rate of return on a bond is less than the coupon rate?
3. When the market’s required rate of return for a particular bond is much less than its coupon rate, the bond is selling at: a premium
When pricing bonds if a bond’s coupon rate is higher than the required rate of return then?
If a bond’s coupon rate is more than its YTM, then the bond is selling at a premium. If a bond’s coupon rate is equal to its YTM, then the bond is selling at par. Formula for yield to maturity: Yield to maturity(YTM) [(Face value/Bond price)1/Time period ]-1.
When the interest rate is lower than the coupon rate on a bond the price of the bond will be?
When interest rates are less than the coupon rate, the bond can be sold at a premium–higher than the face value. A bond’s interest rate is related to the current prevailing interest rates and the perceived risk of the issuer. Let’s say you have a 10-year, $5,000 bond with a coupon rate of 5%.
What is the relationship between coupon rate and yield to maturity?
Yield to maturity Coupon rateThe higher a bond’s coupon rate, or interest payment, the higher its yield. That’s because each year the bond will pay a higher percentage of its face value as interest. PriceThe higher a bond’s price, the lower its yield.
Why is it that if a bond’s coupon rate is higher than its yield to maturity then the bond will sell for more than face value?
premium
What happens to a bond when the market interest rate is higher than its coupon rate?
If a coupon is higher than the prevailing interest rate, the bond’s price rises; if the coupon is lower, the bond’s price falls.
When the market rate of return exceeds the coupon rate a bond will sell at?
If a bond’s yield to maturity exceeds its coupon rate, the bond will sell at a premium over par. If a bond’s yield to maturity exceeds its coupon rate, the bond will sell at a discount below par. Three $1,000 par value, 10-year bonds have the same amount of risk, hence their yields to maturity are equal.
