adminCoupon Rate: Coupon rate is the rate of interest paid by bond issuers on the bond’s face value. It is the periodic rate of interest paid by bond issuers to its purchasers. The coupon rate is calculated on the bond’s face value (or par value), not on the issue price or market value. For example, if you have a 10-year- $2 000 bond with a coupon rate of 10 per cent, you will get $200 every year for 10 years, no matter what happens to the bond price in the market.
Description: The government and companies issue bonds to raise money to finance their operations. When you buy a bond, the bond issuer promises periodic (annually or semi-annually) interest payments on the money invested at the coupon rate stated in the bond certificate. The bond issuer pays the interest annually until maturity, and after that returns the principal amount (or face value) also.
✴✴✴
Base Rate: Base rate is the minimum rate set by the Reserve Bank below which banks are not allowed to lend to its customers.
Description: Base rate is decided in order to enhance transparency in the credit market and ensure that banks pass on the lower cost of fund to their customers. Loan pricing will be done by adding base rate and a suitable spread depending on the credit risk premium.
✴✴✴
Bid-ask Spread: Bid-Ask Spread is typically the difference between ask (offer/sell) price and bid (purchase/buy) price of a security. Ask price is the value point at which the seller is ready to sell and bid price is the point at which a buyer is ready to buy. When the two value points match in a marketplace, i.e. when a buyer and a seller agree to the prices being offered by each other, a trade takes place.
These prices are determined by two market forces — demand and supply, and the gap between these two forces defines the spread between buy-sell prices. The larger the gap, the greater the spread! Bid-Ask Spread can be expressed in absolute as well as percentage terms.
When the market is highly liquid, spread values can be very small, but when the market is illiquid or less liquid, they can be large.
Description: Calculation of Bid-Ask Spread:
Bid-Ask Spread (absolute) = Ask/Offer Price – Bid/Buy Price Bid-Ask Spread (%) = ((Ask/Offer Price- Bid/Buy Price) – Ask/Offer Price)*100
✴✴✴
Bullish Trend: A trend in financial markets can be defined as a direction in which the market moves. Bullish Trend is an upward trend in the prices of an industry’s stocks or the overall rise in broad market indices, characterised by high investor confidence.
Description: A bullish trend for a certain period of time indicates recovery of an economy.
✴✴✴
Bearish Trend: Bearish Trend in financial markets can be defined as a downward trend in the prices of an industry’s stocks or the overall fall in broad market indices.
Description: Bearish trend is characterised by heavy investor pessimism about the declining market prices scenario. A fall in the prices of about 20 percent is identified as a bearish trend.
✴✴✴
Bond Price: Bond price is the present discounted value of future cash stream generated by a bond.
It refers to the sum of the present values of all likely coupon payments plus the present value of the par value at maturity. To calculate the bond price, one has to simply discount the known future cash flows.
Description: The price of a bond and its yield-to-maturity are negatively correlated to each other. When the yield-to-maturity is higher than the coupon rate, the price of a bond is less than the face value and vice-versa. Usually bonds are issued at coupon rates close to the prevailing interest rate, so that they can be sold close to their face values.
However as time passes, bonds frequently trade at prices that are different from their face values.
While two parties can agree on a price and execute a trade, a vast majority of bonds are sold either through a public sale or through an exchange platform and the price of the bond is thus determined by the market, and as a result, may vary every minute.
✴✴✴
Online Reporter