NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Introduction to Securities Markets
Which of the following is a feature of a bond's coupon rate?
The coupon rate is the fixed interest rate applied to a bond's face value to determine its periodic interest payments. It does not change with market price. Yield to maturity moves with price and equals the coupon rate only when the bond trades at par.
- AIt changes daily with the bond's market price
- BIt is the fixed interest rate applied to the face value of the bondCorrect
- CIt equals the yield to maturity at all times
- DIt is the rate at which the bond is redeemed
Explanation
The coupon rate is stated as a percentage of face value and determines the periodic interest paid for a conventional fixed-rate bond. It does not vary with market price, whereas yield to maturity does. The two are equal only when the bond trades at par.
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