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What is the difference between effective interest rate and the coupon rate? I’m getting confused.. Could you please explain me further on this?
The coupon rate is the legal amount attached to the bond that must be paid by the issuer. The effective rate is the rate that is used for accounting purposes as part of amortised cost to spread the coupon rate and premium on redemption through profit or loss. It is not a rate of interest that is paid by the issuer.
Thanks a lot Chris!