What is the difference between coupon rate and repo rate?
REPO RATE- this is the rate at which RBI lends money to commercial banks if they have shortfall of funds . This rate is used by RBI to maintain the price stability in the financial system. Suppose their is a high liquidity in the market and people have more cash in hand to spend then in this case price of various items get increased. Therefore RBI increase repo rate to maintain price stability . If RBI increase repo rate then cost of borrowing of fund from RBI get increase for commercial bank .This increased cost pass on to customers by commercial banks . This event in turn decrease liquidity which brings price stability. In case of less liquidity in the system, RBI decrease repo rate to spur money demand by banks which in turn boost growth because cost of borrowing gets decreased. COUPON RATE- it represent the yield paid by fixed income security such as bond.suppose a bond is issued whose face price is 100 rupee and it gives 5 rupee coupon semi - annually . Then the coupon rate of this bond issue is 10%.
What's the difference between "Interest rate" and "coupon rate" (URGENT)?
As I see it the coupon rate or the interest rate is the same thing. That is the rate stated on the face of the bond. This is fixed (usually) for the life of the bond or maybe forever (irredeemable, perpetual. When the bond comes to expiry you get back the face value. You can therefore calculate flat interest or redemption interest. Okay, now the tricky bit! The tricky bit is the YIELD. Now this is variable and is different to different people owning exactly the same bond! It differs according to the price you pay for the bonds. So lets say we have £100 face value of Treasury 10% (coupon) erxpiry 2015 The price of this might be £120. We pay £120 for £100 of Stock coupon 10% The yield will be 100/120 x 10=8.33% So you are getting a return (flat) on your money of 8.33% p.a. If you are working out a redemption yield you would get 7 years of 8.33% but lose £20 of capital at the end. Another way looking at it: Same details as above. Each year you receive an interest payment of £10 (£100 x 10%) This £10 as a percentage of your investment is 10/120 x100=8.33% This is a good question, I will put it on my website: www.shareworld.co.uk There is a Q&A section and a free answer service for questions like yours.
What is difference between interest rate and rate of return?
The interest rate is a generic notion that it is usually associated to lending contracts. It indicates the amount that a lender charges to the borrower in exchange for the lended funds and it is expressed as a percentage of this amount (principal). There are various kinds of interest rates depending on the type of contract and on the type of aspect that you want to consider and usually each of them has a specific name. But without entering too much into detail, the key difference between an interest rate and a rate of return is that the rate of return is the overall net amount that a lender/investor receives from a borrower/investment. This amount is expressed as a percentage of the invested capital and it comprises both the interest rate eventually received from the investment and the capital gain that is associated with the sale of the investment at a price higher than what the investor paid initially.Therefore, interest rates do not comprise capital gains while rate of return do so. In case there is not a capital gain/loss, the interest rate may coincide with the rate of return of the investment (if it is a bond for example).
What is the relationship between the coupon rate & the required rate of return that will result in a bond?
if the coupon rate is lower, the bond is selling at a discount if the coupon rate is the same, the bond is selling at a face value if the coupon rate is higher , the bond is selling at a premium So coupon has an inverse relationship with required rate of return.
What is a bond yield? Is it different than YTM, coupon rate?
December 27, 2016Three different ways to value a bond.Example: You buy a 9% ACME Bond, maturing on Dec 31, 2019. It has a face value of $1000, but you buy it for the discounted price of $910.The Coupon Rate is 9%. It pays $90 per year since it was issued$90 is 9% of the original $1000 investment.The Bond Yield (aka, Current Yield) is 10%. 10% is your return this year, if you buy the bond at today’s prices$90 is 10% of your $910 investment.The Yield to Maturity (YTM) is 13%. It’s the only number that really matters. YTM measures your total return if you buy it a today’s price and hold it until maturity(in 3 years).Your total interest will be 3 x $90 = $270. Plus a profit of $90 (your $910 bond will be worth $1000 at maturity in 3 years.Your total return will be $360. That’s an average of $120 per year on a $910 investment.
What is the difference between coupon rate and yield for bonds?
Pretty amazing that a top contributor doesn't know what bond yield means. Raysor's definition is the "current yield" which on that bond is decidedly lss than the yield. The yield is the discount rate which equates all the future cash flows with the current market price. That means it is some combination of coupon interest plus amortization of the discount or premium. A really rough approximation in the 5% bond you bought at 50 that matures in 5 years is that your yield is 10% for the coupon interest + 14% for the amortization of the discount (the bond principal payment is 100 in 7 years so it doubles) = 24%. That's not exactly right of course and you need to use a computer in general to find yield.
How does market interest rate and coupon rate affect bond value?
Market interest rate and bond value: If the interest rate is higher, the bond price is lower and vice versa. If the interest rate falls, bond prices can rise substantially, due to the concept of opportunity cost of investments.Example: A bond is paying annual coupon at 7% p.a, now general interest rates rise in economy and therefore a bank fixed deposit is pay 9.5% p.a. In this case a rational investor will divert his investment from bonds to fixed deposits.Coupon rate and bond value: Generally higher the coupon rate, higher will be the bond value, but there is an another factor, i.e. bond yield. Yield is nothing but the market rate of return on a comparable bond i.e. a bond with same risk profile.If yield>coupon, i.e. a comparable bond having same risk profile is paying higher interest than original bond, then in this case the value of original bond will decrease and that of comparable bond will increase.If yield
Bond Questions: YTM same thing as required return, YTM same thing as coupon rate?
The answers to both of your questions is no. Required return is the return necessary to entice an investor to invest their money in a particular venture. The coupon rate is how much interest a bond pays out. Yield to maturity changes as the value of the bond fluctuates. As an example, if a company issued bonds at $1,000 par value and a coupon of $100, you have a coupon rate of 10%, when the bond as issued. However, if some years down the road the bonds are trading at $900 in the open market, your yield to maturity is higher than 10%. It's higher because the coupon of $100 is 11.11% of the now $900 purchase price. Plus, when the bond matures, you will be paid back the $1,000 par value, so the $100 gain in principal need to be factored in over the life of the bond. This will make your YTM even higher than 11.11%. How much higher depends upon how much longer the bond has until maturity.