The beauty of a 澳洲幸运5官方开奖结果体彩网:fixed-income security is that an investor can expect to receive a certain amount of cash, provided, of course, that the bond or debt instrument is held until maturity (and its issuer does not default).

Most bonds pay interest semi-annually, which means bondholders receive two payments each year. So with a $1,000 澳洲幸运5官方开奖结果体彩网:face value bond that has a 10% semi-annual coupon, you would receive $50 (5% x $1,000) twice per year for the next 10 years. Bonds pay out simple interest (i.e., with no compounding), so the holder of such a bond could expect to🧸 receive a total of $1,000 in interest at expiration, and also receive the initial $1,000 principal amount paid for the bond back.

If interest rates change over the c🍌ourse of holding the bond, its market price of the bond will change, but you will still receive a fixed $50 coupon payment twice a year—and you will still get the full $1,000 back at maturity.

Bond Yield Concerns

While this calculation is accurate, most fixed-income investors, however, are concerned not with the coupon payment, but with the bond yield, which is a measure of the i🍨ncome generated by a bond, calculated as the interest divided by the price.

If the bond is selling at a face value of $1,000, or par, the coupon payment is equal to the yield, which in this case is 10%. This would also imply that prevailing interest rates are also right around 10%. But, bond prices are affected by (among other things) the interest offered by other income-producing bonds which make up the interest rate environment. As such, bond prices fluctuate as interest rates change, and in turn, so do 澳洲幸运5官方开奖结果体彩网:bond yields.

Example

To further illustrate the difference between yield and coupon payments, let's consider the $1,000 bond with a 10% coupon and its 10% yield ($100 / $1,000). Now, if the 澳洲幸运5官方开奖结果体彩网:market price fluctuated and valued your bond to be worth $800, the bond's yield would now be 12.5% ($100🧔 / $800), bu༺t the $50 semi-annual coupon payments would not change.

Conversely, if the bond price were to shoot up to $1,250, its yield would decrease to 8% ($100 / $1,250), but a🧸gain, you would still receive the same $50 semi-annual coupon paym𝓀ents.

This is because a fixed-rate bond will always pay its stated coupon rate based on its face value at issuance. Thus, if you can earn 10% on the bond, but interest rates are now only 8%, the bond's payments become more attractive and the price of the bond is bid up accordingly. Likewise, if rates rise to 12%, the 10% coupon becomes less attractive and people will only buy that bond for a discount. This is why bond prices in the market and interest rates are inversely correlated.