Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › How is an attractive bond to investors
- This topic has 5 replies, 2 voices, and was last updated 8 years ago by John Moffat.
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- November 10, 2015 at 4:03 am #281373
Dear Sir, I still confused how an attractive bond, is it should be issued @ coupon rate > market interest rate and a premium on repayment?
November 10, 2015 at 8:55 am #281425There are lots of ways of trying to make an issue of bonds attractive to investors.
The most obvious way is to offer a high coupon rate. Alternatively issue at a discount (so they get more back on redemption than they paid, as well as still receiving interest). Alternatively promise to redeem at a premium (so that again they get more back on redemption than they originally paid, as well as receiving interest).
November 10, 2015 at 9:53 am #281445A high coupon rate means it should be higher than market interest rate at the issuing time, is it right?
November 10, 2015 at 2:15 pm #281483Not necessarily higher. Remember that the coupon rate will stay fixed, and so if investors think that market rates are going to fall in the future then they might find the bonds attractive even if currently the coupon rate it not higher.
November 11, 2015 at 1:58 am #281621It make sense, much thanks
November 11, 2015 at 8:23 am #281657You are welcome 🙂
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