Annual coupon divided by the face value of a bond

However, since bonds are the most common guaranteed-income securities, coupon rate most often applies to bonds.

Bond Yields: Nominal and Current Yield, Yield to Maturity (YTM) with Formulas and Examples

The coupon rate is the annual rate at which the bond repays its holder. It is not based on subsequent trading. A bond coupon rate is a fixed payment, meaning that it will remain the same for the lifetime of the bond. That active payment occurs on a fixed basis, usually twice a year. Historically, when investors purchased a bond they would receive a sheet of paper coupons. The investor would return these coupons on a regular basis and receive their payment in exchange. Today most issuers make payments electronically. This is the portion of its value that it repays investors every year.

Secondly, a bond coupon is often expressed in a dollar amount. A The longer a bond's maturity, the lower is the rate of return that occurs as a result of the increase in an interest rate.


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B Even though a bond has a substantial initial interest rate, its return can turn out to be negative if interest rates rise. C Prices and returns for long - term bonds are more volatile than those for shorter - term bonds. D All of the above are true. E Only A and B of the above are true.

II A coupon bond pays the lender a fixed interest payment every year until the maturity date, when a specified final amount face or par value is repaid. A calculating the yield to maturity. C yield on a discount basis. D yield to maturity. Answer: D. A When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate. B The price of a coupon bond and the yield to maturity are negatively related. C The yield to maturity is greater than the coupon rate when the bond price is below the par value. C The yield to maturity is greater than the coupon rate when the bond price is above the par value.

B The price of a coupon bond and the yield to maturity are positively related. A pays interest annually and its face value at maturity. B pays interest in perpetuity and never matures. C pays no interest but pays face value at maturity.

Current Yield

D rises in value as its yield to maturity rises. Answer: B. A annual coupon payment; price. B annual coupon payment; face value. A the increase in price over the year, divided by the initial price. B the increase in price over the year, divided by the face value. C the increase in price over the year, divided by the interest rate. D none of the above. Carry out the valuation. What reservations do you have about this valuation? Refer to pp. Exercise 2. Refer to p.


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  8. Calculate the price-to-sales ratio. Value this stock. C discount loan. E none of the above.

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    Treasury bonds and notes are examples of coupon bonds. C Corporate bonds are examples of coupon bonds. E Only A and B of the above. A The longer a bond's maturity, the lower is the rate of return that occurs as a result of the increase in an interest rate. B Even though a bond has a substantial initial interest rate, its return can turn out to be negative if interest rates rise. C Prices and returns for long - term bonds are more volatile than those for shorter - term bonds.

    D All of the above are true. E Only A and B of the above are true. II A coupon bond pays the lender a fixed interest payment every year until the maturity date, when a specified final amount face or par value is repaid. A calculating the yield to maturity. C yield on a discount basis. D yield to maturity. Answer: D. A When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate. B The price of a coupon bond and the yield to maturity are negatively related. C The yield to maturity is greater than the coupon rate when the bond price is below the par value.

    C The yield to maturity is greater than the coupon rate when the bond price is above the par value. B The price of a coupon bond and the yield to maturity are positively related. A pays interest annually and its face value at maturity. B pays interest in perpetuity and never matures.

    C pays no interest but pays face value at maturity. D rises in value as its yield to maturity rises. Answer: B. A annual coupon payment; price. B annual coupon payment; face value. A the increase in price over the year, divided by the initial price.

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    B the increase in price over the year, divided by the face value. C the increase in price over the year, divided by the interest rate. D none of the above. Carry out the valuation. What reservations do you have about this valuation? Refer to pp. Exercise 2. Refer to p. Calculate the price-to-sales ratio.