To do so, it issues 5-year bonds, also called notes, with a 7% coupon rate.
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In the early 1980s, the coupon rate on 10 year Treasury bonds reached 15 percent.
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Why not use a discount rate that is equal to the coupon rate?
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This current coupon rate has not yet been set as the management team to underwrite the issue has not been chosen.
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 most common types of bonds pay a set percentage of interest over a specified period of time, referred to as the coupon rate.
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In its budget presented late February, the government had announced that it will issue bonds whose coupon rate will be adjusted to reflect changes in inflation.
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.
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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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.
In the negotiations over Greek debt, the Greek newspaper Ethnos reported that bondholders are willing to accept a coupon rate of below 4% on bonds they would receive under a debt-exchange program.
This would help Greece avoid a funding squeeze and would come perhaps at the cost of conditions floated last week including a higher coupon rate at rollover and collateral to be held by the debt holder.
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In the spring he paid between 70 cents and 80 cents per dollar of face value for a senior tranche of the WaMu Mortgage Pass-Through 2005-AR2, which carries a coupon rate of Libor plus 31 basis points, or 3.52% in September.
All things equal, for typical bonds the longer the maturity the higher the duration (or price volatility from interest rate movements), and the smaller the coupon the higher the interest rate risk.
Five years ago Russia had a big budget deficit, a fixed exchange rate and a lot of high-coupon debt.
They resemble bonds in that their dividend rate is typically fixed, much like a bond coupon.
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Bonds have an underlying rate of return the yield, or the coupon if you will, when you buy it.
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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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Just like the pain experienced by conservative coupon-clipping bond investors, money is barely earning any interest, due to a low rate environment.
If the real aftertax return is to be, say, 2%, and if inflation is 4%, and if your tax rate is 25% (it's probably higher), you need an 8% coupon on your long Treasury.
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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