Unless otherwise defined, the coupon rate for a bond is the future interest payments during the remaining running time plus the redemption payment at maturity. – If the coupon rate calculated in this way – say: four percent – is lower than the interest rate on corresponding – same risk, same tax burden, same level of information – alternative investments – in the example: five percent – many investors will sell the lower-interest bond. The price for this bond will fall as a result, and the effective interest rate will thus increase for new buyers. – See information efficiency, strict, premium bond.
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