Corporate Finanace

kumar.hemant
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Joined: Mon Nov 17, 2014 4:13 am

Corporate Finanace

Postby kumar.hemant » Mon Nov 17, 2014 4:18 am

Please could someone advise the differnece between coupon rate and yield to maturity on debt for in refrence to cost of debt?
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Hemant
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edupristine
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Joined: Wed Apr 09, 2014 6:28 am

Corporate Finanace

Postby edupristine » Mon Nov 17, 2014 6:46 am

Coupon rate- Rate on which the bondholders will get the annual, semi-annual payments.
YTM- It refers to rate of payment the bondholders will be getting throughout the life of bond.

Difference:- Coupon rate tells you how much you will get annually or semiannually, But the YTM tells you how much you will be getting throughout of bond life (Including coupon rate factor).

kumar.hemant
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Joined: Mon Nov 17, 2014 4:13 am

Postby kumar.hemant » Tue Nov 18, 2014 8:28 am

So if I understand correctly, when the coupon rate is fixed then there would be no difference between coupon rate and YTM?? It's only when bonds are issued on floating rates then there would be difference?

edupristine
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Postby edupristine » Fri Nov 21, 2014 7:07 am

When the coupon rate is fixed and it's equal to YTM. Hence it means bond is issued on par but it is not necessary always for example:- Coupon rate = 8%(annually), YTM =10%, Face value= 100, N=5, Price of bond= 92.4. In such example coupon rate is fixed but not equal to YTM.
Floating rate bonds have a variable coupons which is adjusted towards market reference rate.


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