Coupon

The exam loves to make you separate the fixed coupon rate (set at issuance on the face value) from the market yield that moves daily — a floating-rate note resets its coupon to a reference rate plus a quoted (fixed) spread each period, so its coupon does change while a plain-vanilla bond’s never does. The classic vignette gives a coupon plus a price (discount, par, or premium) and asks for the relationship to yield: because price and yield move inversely, a discount price always implies yield-to-maturity above the coupon. Watch the day-count trap too — US Treasury accrued interest uses actual/actual, but US corporate and municipal bonds use 30/360.

A frequent mistake is conflating coupon with current yield (annual coupon ÷ price) or with YTM; only at par do coupon rate, current yield, and YTM coincide (at a discount, current yield sits between the two). Don’t mistake a zero-coupon bond’s lack of payments for no return — its implied interest accretes as the price pulls to par. Hook: discount, yield’s up; premium, yield’s down.