coupon

Examples of coupon in the following topics:

• Coupons

  • Coupon programs offer a host of benefits.
  • Build brand awareness - A consumer sees the brand name on the coupon even when the coupon is not redeemed.
  • The optimal scenario for marketers is that coupons create brand awareness without consumers using the coupon.
  • In fact most coupons are never redeemed.
  • Tracking codes let retailers know not only who redeemed the coupons, but also where the coupons were found.

• Zero-Coupon Bonds

  • A zero-coupon bond is a bond with no coupon payments, bought at a price lower than its face value, with the face value repaid at the time of maturity.
  • It does not make periodic interest payments, or have so-called "coupons," hence the term zero-coupon bond.
  • Examples of zero-coupon bonds include U.S.
  • Investment banks or dealers separate coupons from the principal of coupon bonds, which is known as the "residue," so that different investors may receive the principal and each of the coupon payments.
  • This creates a supply of new zero coupon bonds.

• Coupon Interest Rate

  • The name "coupon" arose because in the past, paper bond certificates were issued that had coupons attached to them, one for each interest payment.
  • Not all bonds have coupons.
  • Zero-coupon bonds are those that pay no coupons and thus have a coupon rate of 0%.
  • Based on different coupon rates, bonds are classified into many types.
  • A variation are stepped-coupon bonds, with a coupon that increases during the life of the bond.

• Impact of Payment Frequency on Bond Prices

  • Bond prices is the present value of all coupon payments and the face value paid at maturity.
  • However, the present values of annuities of coupon payments vary among payment frequencies.
  • According to the formula, the greater n, the greater the present value of the annuity (coupon payments).
  • To put it differently, the more frequent a bond makes coupon payments, the higher the bond price.
  • Bond price is the present value of all coupon payments and the face value paid at maturity.

• Par Value at Maturity

  • A bond selling at par has a coupon rate such that the bond is worth an amount equivalent to its original issue value or its value upon redemption at maturity.
  • A typical bond makes coupon payments at fixed intervals during the life of it and a final repayment of par value at maturity.
  • Together with coupon payments, the par value at maturity is discounted back to the time of purchase to calculate the bond price.
  • The coupon payments of such bonds are also accordingly adjusted even though the coupon interest rate is unchanged.
  • Bond price is the present value of coupon payments and the par value at maturity.

• Floating-Rate Bonds

  • Floating rate bonds are bonds that have a variable coupon equal to a money market reference rate (e.g., LIBOR), plus a quoted spread.
  • Almost all FRBs have quarterly coupons (i.e., they pay out interest every three months), though counter examples do exist.
  • At the beginning of each coupon period, the coupon is calculated by taking the fixing of the reference rate for that day and adding the spread.
  • A typical coupon would look like three months USD LIBOR +0.20%.
  • For instance, some FRBs have special features, such as maximum or minimum coupons, called "capped FRBs" and "floored FRBs. " Those with both minimum and maximum coupons are called collared FRBs.

• Factors Affecting the Price of a Bond

  • A bond's book value is affected by its term, face value, coupon rate, and discount rate.
  • A bond's coupon is the interest rate that the business must pay on the bond's face value.
  • While the coupon rate is generally a fixed amount, it can also be "indexed. " This means that the interest rate is calculated by taking an established rate that fluctuates over time, such as a bank's lending rate, and adding a "premium" percentage amount to determine the bond's coupon rate.
  • As a result, the interest that is paid to the bond holder fluctuates over time with an indexed coupon rate.
  • Explain how a bond's value is affected by its term, face value, coupon and discount rate

• Valuing Zero-Coupon Bonds

  • The value of a zero-coupon bond equals the present value of its face value discounted by the bond's contract rate.
  • A zero-coupon bond with requires repayment of $100,000 in 3 years.
  • A zero-coupon bond is one that does not pay interest over the term of the bond.
  • Zero-Coupon Bond Value = Face Value of Bond / (1+ interest Rate)
  • It is important when completing the zero-coupon bond calculation to ensure the time period and term of the bond are expressed in similar terms.

• Other Types of Bonds

  • Fixed rate bonds have a coupon that remains constant throughout the life of the bond.
  • A variation is a stepped-coupon bonds, whose coupon increases during the life of the bond.
  • For example the coupon may be defined as three month USD LIBOR + 0.20%.
  • Zero-coupon bonds pay no regular interest.
  • Zero-coupon bonds may be created from fixed rate bonds by a financial institution separating ("stripping off") the coupons from the principal.

• Deciding to Refund Bonds

  • Refunding occurs when an entity that has issued callable bonds calls those debt securities to issue new debt at a lower coupon rate.
  • Refunding occurs when an entity that has issued callable bonds calls those debt securities from the debt holders with the express purpose of reissuing new debt at a lower coupon rate.
  • On the contrary, nonrefundable bonds may be callable, but they cannot be re-issued with a lower coupon rate (i.e., they cannot be refunded).
  • Interest rates in the market are sufficiently less than the coupon rate on the old bond