COMMERCE 1AA3 Lecture 29: Class 29
10 Mar 2017
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You buy and sell bonds through the stock exchange. The market rate is what they would pay you. The coupon/contractual/face/nominal rate is the rate which determines interest payment (ie. what is paid). The market rate/yield is the rate that determines the interest expense (ie. what should be paid). The face value of a bond is the amount that is promised to be given back at the maturity rate. The issue price is a percent of face value (ie. a bond sold at = 1. 08*1000 = . This means that the bond was issued at a premium). This also means that coupon rate is greater than market rate. If issue price is 93 for a bond, then issue price is and bond was sold at a discount, and coupon rate is less than market rate. Bonds works exactly like an interest only note payable. Bonds are paid twice a year in canada.
