However, agencies may recognize market adjustments on bills, notes, bonds, and zero coupon bond securities classified as available-for-sale.
The reason is that someone buying a high-coupon bond at a premium is entitled to write off the premium over time as a deduction against the interest income.
Effective October 1, 2002, for intragovernmental investments with the Bureau of the Public Debt (BPD), BPD and trading partner agencies will use the interest method for amortization on market-based notes, bonds, and zero-coupon bond securities.
But reasonably sophisticated investors can create the same product themselves by purchasing a risk-free zero-coupon Treasury bond and call options on a stock index, such as XSP options traded on the Chicago Board Options Exchange.
If you buy a junk bond with borrowed funds, you collect the high coupon on the bond while paying out a lower amount, presumably not too much more than what the U.S. government pays to borrow money.
They resemble bonds in that their dividend rate is typically fixed, much like a bond coupon.
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Defaulting on those obligations, including coupon payments to bond holders, would cause severe hardship for the US economy.
Just like the pain experienced by conservative coupon-clipping bond investors, money is barely earning any interest, due to a low rate environment.
If you are going to use a discount rate of 6% AND assume the bonds are selling at par, then you MUST assume that the coupon on the bond is also 6%.
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The offering coupon on the bond, which is the yield the government agreed to pay on the debt when it registered the issue with the market, was 4.875% before high demand brought the yield to its lowest ever.
When interest rates were higher, fund managers could offset bond losses with coupon payments from higher-yielding bonds.
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You should consider the coupon rate paid by your bond, which may be higher than the yields currently quoted for Treasuries.
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The dividend is riskier than the coupon on a long Treasury bond (which yields about the same) but is presumably better protected against inflation.
All else being equal, a bond with a smaller coupon loses more value when rates rise.
All things being equal, an investor would rather not hold a bond with a low coupon rate when new bonds are being issued at higher coupon rates.
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At the other end of the spectrum is an income bond (one whose coupon is contingent on earnings) of a shaky startup -- equity in all but name.
When adjusted for taxes, investors are at the point where they can potentially receive better (and growing) income streams from a collection of large cap businesses than from a (fixed- coupon) 10-year government bond.
Stock values are derived by discounting dividends, bond values by discounting interest coupon payments.
When rates rose 200 basis points from there, a bond with a 7% coupon lost 21% of its value.
The biggest gains on U.S. government debt has come from capital gains pops in the bond price, not reinvested coupon payments.
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Or if you want the 5% coupon, your option is likely a bond with a riskier profile or a longer term, which can also ratchet risk.
If you bought a 10-year bond with a 5% coupon in 2003, your only option as it matures in 2013 may be to accept a much lower coupon rate.
The coupon for the Enterprise Products Operating Lp Bond (CUSIP: 293791AV1) terminates on Aug. 1, 2016 and thereafter floats at three-month Libor plus 370.75 basis points (100 basis points equals one percentage point).
It is calculated by dividing the annual coupon payment by the par value of the bond.
He said the company was motivated by opportunities that abound in the bond market coupled with the higher coupon rate currently at 9 percent per annum.
When the Gap launched its 10-year bond with a 5.95% coupon on April 8, it was prices to yield about 238 basis points more than the 10-year treasury yield.
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The loss is only real if you decide to sell the bond before it matures, therefore forgoing the future coupon payments that would offset the loss in principal, and lock in that sales price below par.
If you assume that the bond is selling at par, has an average coupon of 5.5%, say, and you use a discount rate of 6%, then you are implicitly saying that the bond is actually riskier than the market perceives it to be.
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Convertible bonds can be devised with any degree of equity-like or bond-like behavior to them, depending on the coupon and the conversion terms.
Like a bond, convertibles usually have a maturity date and pay a regular coupon, which should appeal to income-minded investors.
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