by any of the top rating agencies, it must offer its coupon rate at a price higher than the prevailing interest rate to compensate investors for assuming additional credit risk. The formula for calculating the Coupon Rate is as follows: Where: C Coupon rate, i Annualized interest, p Par value, or principal amount, of the bond. A bond issuer decides on the coupon rate based on prevalent market interest rates, among others, at the time of the issuance. For investors acquiring the bond on the secondary market, depending on the prices they pay, the return they earn from the bond's interest payments may be higher or lower than the bond's coupon rate. The issuer only pays an amount equal to the face value of the bond at the maturity date. Produce printed coupons, create in-store coupons for mobile users.
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For example, if an early-stage company or an existing company with high debt ratios issues a bond, investors will be reluctant to purchase the bond if the coupon rate does not compensate for the higher default risk. More, see more offers in Household. Breaking down Coupon Rate, a bond's coupon rate can be calculated by dividing the sum of the security's annual coupon payments and dividing them by the bond's par value. The Fed charges this rate when making interbank funds transfers to other banks and the rate guides all other interest rates charged in the market, including the interest rates on bonds. Yield to Maturity, when investors buy a bond initially at face value and then hold the bond to maturity, the interest they earn on the bond is based on the coupon rate set forth at the issuance. To select the date, click the.