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I have some slight confusions regarding rates, can you tell me the difference between these:
1. Gross Redemption Yield/Yield to Maturity rate
2. Coupon rate
3. Effective annual rateAnd which rate would we use for discounting bonds, convertible debt etc
You must watch my free lectures (and those for Paper F9, because this is revision of F9) – I cannot type out all my lectures here!!!!
Gross redemption yield is the actual return to investors (i.e. the IRR of the pre-tax interest and redemption flows).
Coupon rate is the interest rate on nominal.
Effective annual rate is not really relevant for P4 (it is in F2 that it is tested), but when interest rates are given for non-annual period (e.g. monthly interest rate) then it is the annual interest rate that is equivalent to them.
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