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08100080 29 29 characteristicsofbond many bonds issued

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Unformatted text preview: that would enable it to generate approximately 8% to the new owner. In this case, that would mean a price of about $875 What if Rates Fall? Similarly, if rates dropped to below your original coupon rate of 7%, your bond would be worth more than $1,000. It would be priced at a premium, since it would be carrying a higher interest rate than what was currently available on the market. In this case, that would mean a price of about $ 1166 27 27 Characteristics of Bond Coupon and Coupon Rate Coupon is the interest rate on a debt security that the issuer promises to pay the holder until maturity. As shown in the following Equation , the coupon is equal to the coupon interest rate as a percent rate multiplied by the maturity or par value of the bond. I = c (M) where I is the coupon (annual cash interest payment); c is the coupon interest rate per year as a percentage; and M is the maturity or par value of the bond. The coupon interest rate, also called the nominal yield, is the contractual rate of interest based on a bond’s par value...
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