标题: Premium bonds highest coupons? from sample test [打印本页] 作者: manchester88 时间: 2011-7-13 17:14 标题: Premium bonds highest coupons? from sample test
"Holding maturity and yield constant, amortizing bonds selling at a premium would have the highest coupon payments and the highest amount requiring reinvestment; therefore, they have the highest level of reinvestment risk. In the case of par value amortizing bonds, only coupons must be reinvested."
I understand why high coupons are riskier from reinvestment perspective. But I thought that coupons are paid as stated and premium is a yeild related term.... I'm not quite following the description from CFA sample test question作者: koba 时间: 2011-7-13 17:14
Yes ov25, you are totally right on understanding Premium as being a yield related term.
But here, it is saying there are 2 bonds with same Maturity and Yield. One is selling at a Premium and another is selling at Par. Which one would be paying a higher coupon?
The one selling at Premium would surely have in it a higher premium, cause other things (Yield and Maturity are same for both). Correct?
Now, higher the coupon, higher would be the re-investment risk. You have already got this part.作者: ramdabom 时间: 2011-7-13 17:14
Higher coupon means more to invest each period , so if rates go down , you could have greater risk of loss . Low coupon means you got a bigger discount already ( equate to profits) , so less to invest each period , so if rates go down , you have less risk of loss ( most profits made up front )
