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Chapter 10 - A brief history of bond coupons, and why we call it the coupon rate
Terms in this set (11)
What is the stated interest rate on a bond commonly called?
The stated interest rate on a bond is commonly called the coupon rate?
What were bonds represented by in the days before digital transactions?
In the days before digital transactions, bonds were represented by physical certificates (paper).
In the days before digital transactions, how was the stated interest rate on a bond reflected?
The stated interest rate was reflected in coupons for specific dollar amounts, which the investor would clip off and redeem for cash.
In days gone by, how were most bonds (and stocks) evidenced?
In days gone by, most bonds (and stocks) were evidenced by paper certificates.
Nowadays, how are most bonds and stocks evidenced?
Nowadays, most bonds and stocks are evidenced by a digital record on your brokerage account.
What was another characteristic of many bonds in the days before digital transactions?
Another characteristic of many bonds was that they were bearer bonds.
What did it means to have bearer bonds?
Whomever had possession of them had rights to the semiannual interest payment. The issuer did not keep track of whom held the bond. The payment was made to the person who presented one of the coupons attached to the bond certificate.
It is still customary for most bonds to pay their annual interest payments in how many installments?
What never changes for the life of a bond?
The coupon rate is fixed within the bond, and never changes for the life of the bond.
What does the term coupon rate mean?
Coupon rate persists as the common term for the fixed (stated) rate on a bond, even though most modern bonds are represented as entries in a digital account summary and do not have physical coupons.
Today, most bonds are no longer what?
Most bonds today—given that they are in someone's brokerage account—are no longer bearer bonds. Rather, they are registered and the holder of the bond is known.
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