Remember, a bond's coupon rate partially determines the interest-based return that a bond (might/will) ... pay, and a bondholder's required return reflects the return that a bondholder (would like/is obligated) ... to receive from a given investment.

Question

Ishaan Esparza

Business

4 October, 21:48

Remember, a bond's coupon rate partially determines the interest-based return that a bond (might/will) ... pay, and a bondholder's required return reflects the return that a bondholder (would like/is obligated) ... to receive from a given investment.

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Answers (1)

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Diego Allison · Answer 1

will, would like

Explanation:

Bond refers to debt instruments whereby corporates raise long term finance agreeing to pay in return, the holders of such securities (bond holders), timely coupon payments and principal repayment at the end of the term.

The fixed rate of interest bondholders receive is referred to as the coupon rate. The rate of interest received by holders of similar bonds in the market refers to an investors expected rate of return also denoted as YTM i. e yield to maturity.

Yield to maturity refers to the rate of return other investors are earning on similarly priced bonds in the market. Higher the yield to maturity, lower will be the present value of bond.

When coupon rate of payment is higher than YTM, such bonds are priced at a premium.