Coupon discount rate

Discounting

Posted on July 19, by Robin Russo. A bond will trade at a premium when it offers a coupon interest rate that is higher than the current prevailing interest rates being offered for new bonds. This is because investors want a higher yield and will pay for it. In a sense they are paying it forward to get the higher coupon payment.

A bond will trade at a discount when it offers a coupon rate that is lower than prevailing interest rates. Since investors always want a higher yield, they will pay less for a bond with a coupon rate lower than the prevailing rates. So they are buying it at a discount to make up for the lower coupon rate. Said another way, if a bond that is trading on the market is currently priced higher than its original price its par value , it is called a premium bond. Conversely, if a bond that is trading on the market is currently priced lower than its original price its par value , it is called a discount bond.

Falmouth, MA.

Formula for: Zero coupon rate from the discount factor

Parsippany, NJ. Niagara Falls, NY. Saratoga Springs, NY. Bensalem, PA. Frederick, MD.

What’s the Difference Between Premium Bonds and Discount Bonds?

Wilkes Barre, PA. West Springfield, MA. Enfield, CT. Groton, CT. New Haven, CT.

Remarks and Statements

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