COMMERCE 1AA3 Lecture Notes - Lecture 22: Effective Interest Rate
23 Nov 2016
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Contractual interest rate/stated rate/coupon rate / nominal rate. Market rate/yield rate is what the interest expense is based on, and what the company should pay. Face value is what the bond holder will get at maturity. If a bond sells at 108, this means that the selling/issue price is 1. 08 * 1000 = 1080 , meaning that the bond was sold at a premium, and also means that coupon rate > yield. If a bond sells at 93, this means that the selling/issue price is 93% * 1000 = 930, Meaning that the bond was sold at a discount and also means that coupon rate < yield. If the bond sold for 100 this means that the bond was sold at par, and it means coupon rate = yield. This acts like an interest only note payable. December 31 2006 ( and every payment date )
