The bond feature that I chose is coupon. The stated interest payment made on a bond is
the coupon (Ross, Westerfield, & Jordan, 2017, p.166). This is an amount added to a bond based
on the interest rate. Coupons are constant and paid every year, which helps increase the amount
on the bond. When constantly paid on a yearly basis this type of coupon is called a level coupon
bond (Ross, Westerfield, & Jordan, 2017, p.166). When you know the coupon and the face value
you can determine the coupon rate to calculate the total amount you will have at the end of the
bond. These amounts are both valuable to the investor and the issuer since it is an increase from
the original bond amount. The investor would be highly interested in knowing how much they
will acquire at the end of the bond term, as well as the issuer would want to know how much
would need to be paid out.
Yield to maturity is the rate required in the market on a bond (Ross, Westerfield, &
Jordan, 2017, p.166). This is important because it calculates the value of the bond at a particular
point in time; when given the remaining period until maturity, face value, coupon, and the
market interest rate (Ross, Westerfield, & Jordan, 2017, p.166). This tells investors whether or
not it is a good idea to invest in the given bond.
References:
Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2017). Essentials of corporate finance (9th ed.).
New York, NY: McGraw-Hill Irwin.