# As interest in dating increases quizlet

The par value of a bond does not dictate its market price , however. If an investor purchases a bond for its par value, the yield to maturity is equal to the coupon rate. When a Bond's Yield to Maturity Equals Its Coupon Rate If a bond is purchased at par , its yield to maturity is thus equal to its coupon rate, because the initial investment is offset entirely by repayment of the bond at maturity, leaving only the fixed coupon payments as profit. Along with the spot rate , yield to maturity is one of the most important figures in bond valuation. Because coupon payments are not the only source of bond profits, the yield to maturity calculation incorporates the potential gains or losses generated by variations in market price. The entire calculation takes into account the coupon rate; current price of the bond; difference between price and face value; and time until maturity. A bond's coupon rate is equal to its yield to maturity if its purchase price is equal to its par value. A bond's yield is more accurately thought of as the effective rate of return based on the actual market value of the bond. Defining the Coupon Rate, Maturity Date and Market Value of Bonds The coupon rate of a bond is its interest rate , or the amount of money it pays the bondholder each year, expressed as a percentage of its par value.

If the investor purchases the bond at a discount, its yield to maturity is always higher than its coupon rate. A bond's maturity date is simply the date on which the bondholder receives repayment for his investment. Read more What is the difference between yield to maturity and the coupon rate? Suppose you purchase an IBM Corp. If it is purchased at a premium , the yield to maturity is always lower. At maturity, the issuing entity must pay the bondholder the par value of the bond, regardless of its current market value. When is a bond's coupon rate and yield to maturity the same? The yield to maturity of a bond is the rate of return generated by a bond after accounting for its market price, expressed as a percentage of its par value. When a Bond's Yield to Maturity Equals Its Coupon Rate If a bond is purchased at par , its yield to maturity is thus equal to its coupon rate, because the initial investment is offset entirely by repayment of the bond at maturity, leaving only the fixed coupon payments as profit. The entire calculation takes into account the coupon rate; current price of the bond; difference between price and face value; and time until maturity. Considered a more accurate estimate of a bond's profitability than other yield calculations, the yield to maturity of a bond incorporates the gain or loss created by the difference between the bond's purchase price and its par value. If a bond is purchased at a discount, then the yield to maturity is always higher than the coupon rate. A bond's coupon rate is equal to its yield to maturity if its purchase price is equal to its par value. If you sell your IBM Corp. Yield to maturity approximates the average return of the bond over its remaining term. See Why do interest rates have an inverse relationship with bond prices? The par value of a bond is its face value, or the stated value of the bond at the time of issuance, as determined by the issuing entity. A single discount rate is applied to all future interest payments to create a present value roughly equivalent to the price of the bond. As interest rates go up, the price of pre-existing bonds goes down. To entice investors to purchase the bond despite its lower coupon payments, the company has to sell the bond at less than its par value, which is called a discount. These factors include the bond's coupon rate, maturity date, prevailing interest rates and the availability of more lucrative bonds. A bond's yield is more accurately thought of as the effective rate of return based on the actual market value of the bond. The market value of bonds has a negative correlation with prevailing interest rates. Along with the spot rate , yield to maturity is one of the most important figures in bond valuation. As rates decline, current bonds with higher rates become more valuable. Since the market price of bonds is so changeable, it is possible to make a profit in addition to that generated by coupon payments by purchasing bonds at a discount.

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