How Does A Bond Issuer Decide On The Appropriate Coupon Rate To Set On Its Bonds?


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Anonymous Profile
Anonymous answered
Wow! That was an interesting way of explaining how an issuer decides the coupon rate of a bond. It is true that the law of supply and demand is at work here. The issuer must first consider what the market will bear. If investors are only willing to buy bonds that have a coupon rate of 8% then the issuer of the bonds would not be able to set the rate of their bonds at 4%, not if they actually wanted to sell their bonds. Keep in mind that there are significant costs involved for corporations to ready bonds for the market. However, it is possible for the coupon rate of a bond to be different than the required market rate. The required rate is the rate that investors are willing to accept. This can occur when bonds are sold later in secondary markets after the required rates have changed.  If a bond was issued with an 8% coupon rate but the required rate is 10% then the bond would be sold at a discount. Alternatively, if a bond is has a higher coupon rate then what is found in the market the bond would be sold at a premium.
Lois Dawes Profile
Lois Dawes answered
Supply and demand of cash,gold or products and services depending on the base of the bond of Greed ie how much money is someone/some people willing to pay which could mean he sells it for more or less than this figure if the greed is cash the system either way so he/she can laugh.....insensitive or ignorant to any pain it may cause...some call it the seed of the recession

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