Bank News, May 1st, 2005
Understanding how coupon rates affect fixedincome investments is an integral part of evaluating securities. This article demonstrates how the coupon rate affects the liquidity of the bond as well as the value of the option in the case of callable bonds.
The effect coupons have on liquidity
Cushion bonds, rate shields and premium bonds are names commonly used to describe bonds that can protect investors against losses when interest rates rise. Investors have several alternatives to limit losses when interest rates rise: increasing cash holdings; liquidating underwater issues held; buying shor...
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