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Doubt

This topic has 3 replies, 2 voices, and was last updated 10 years ago by MikeLittle.

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May 4, 2015 at 12:53 pm #243983
saifudeen
Member
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Hi Sir,
In financial instrument what is the reason for the coupon rate to be lower than the effective rate ?
May 4, 2015 at 9:19 pm #244067
MikeLittle
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That’s a question I have never been asked and one that I couldn’t really answer!
The only saving grace is that that question has never been asked in either F7 or P2 and is unlikely ever to be asked
May 5, 2015 at 8:49 am #244138
saifudeen
Member
- Topics: 85
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not for xam but for my understanding
May 5, 2015 at 10:32 am #244147
MikeLittle
Keymaster
- Topics: 27
- Replies: 23368
Maybe it’s because the coupon rate is low to save the annual affect on cash flow but the redemption will be at a premium so that premium needs to be taken into account to calculate the effective interest (coupon) rate
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