Question

Differentiate between a bond coupon rate and the market rate of interest.

Answer 1

The differences between a bond coupon rate and the market rate of interest are:

• A coupon rate is a fixed rate of return attached to the face value of the bond paid to the purchaser from the seller, while the market interest rate can change dramatically throughout the lifespan of the bond.

• The coupon rate is calculated on the face value of the bond, which is being invested. The interest rate is calculated considering the basis of the riskiness of lending the amount to the borrower. The coupon rate is decided by the issuer of the bonds to the purchaser. The interest rate is decided by the lender.

A bond is a debt security, similar to an IOU. debtors problem bonds to raise money from investors inclined to lend them money for a certain amount of time. while you buy a bond, you are lending to the provider, which may be a government, municipality, or enterprise.

Bonds are issued with the aid of governments and agencies after they want to elevate money. by means of shopping for a bond, you are giving the provider a mortgage, and they agree to pay you again the face fee of the loan on a particular date and to pay you periodic interest payments along the way, generally two times a year.

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