Saturday, February 20, 2010

exactly why is a bond selling at a discount@@

...because this bond's coupon rate is (perhaps significantly) lower than current "market rate" i.e. coupon rate of a bond trading at par, such as new issues.

"market rate" might also mean the spot interest rate or prevailing discount factor (i.e. yield) for the same credit quality?

Now, the same bond could appreciate in price in a few years, if market sentiment changes (yield curve drops), and this bond's coupon rate suddenly looks attractive.

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