There are many factors that influence bond prices, including market interest rates, remaining years to maturity, the amount of coupon payments and the frequency of coupons. Bonds usually pay interest on a semi-annual coupon. But assume the coupon’s annual repayment, and if everything remains the same, this change in the frequency of coupon payments may increase or decrease the bond price, depending on the market’s interest rate in relation to the coupon rate.

General bond prices

General bond prices

Bond prices are changing in response to changes in market interest rates. When a market interest rate that requires investors a bond is higher than what the interest coupon paid on the coupon, the bond must be sold at a discount on its nominal value to attract potential investor. On the other hand, when the market’s interest rate is that investors of a bond receive less than what the coupon’s coupon’s interest paid, the bond may be sold with a premium rather than its amount to be paid the holders of the bonds. Current Relative rates of interest rates on a bond market and coupon rate affect different bond prices when comparing bond prices at different payment frequencies.

Frequency payments

Frequency payments

The repayment frequency mainly affects the compound interest. The more often the bond coupon payments, the higher the effective yield of the bond with the same annual nominal interest rate. If a bond pays a coupon interest per year instead of the year, the interest will be paid twice instead of once, resulting in an increase in the total bond yield at the end of the year. The share of bond yields is a reflection of the price paid for the purchase. Depending on the market interest rates, bond prices may be lower or higher as a result of payment frequencies.

Discount voucher

Discount voucher

A bonus with annual payment is higher than a bonus with a semi-annual payment, when the same is sold at a discount. In other words, the yield on bonds with semi-annual payments is higher than the annual payment bonds. However, regardless of the frequency of payment, bond investors receive the same amount of cash payments when appropriate. Therefore, the semi-annual bonus with higher yields can reach the expected performance level only at lower purchase prices.

Premium bonuses

Premium bonuses

A bond with semi-annual payments has a price higher than a bonus with annual payments when both are sold with premium. Bonds can be sold at a premium only when their interest rate on the market is lower than the nominal interest rate. In general, bonds with semi-annual repayments are more sensitive to changes in market interest rates. For the same amount where market interests fall, bonds with semi-annual payments tend to increase their prices.