What is Coupon Rate on Debentures (Class 12)
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This topic is concerned with the issue of debentures chapter of Accountancy class 12.
I have explained this topic in detail.
What do you mean by coupon rate of Debentures (Class 12)
Coupon Rate is the rate of interest specified on the debenture.
In short, you can say it is the rate of interest paid by the issuer of debentures to the debenture holder as specified in the bond certificate.
The coupon rate is calculated on the face value of debentures, not on the market value of it.
For Example, TaTa Ltd issued a 10% debenture of face value ₹100 at the market price of ₹150.
Thus 10% of ₹100, ₹10 would be paid half yearly in two installments in a year. i.e, ₹5 an installment.
Thus Interest rate of Debenture is called coupon rate because it is paid on face value, not on the market value.
The market value of debentures may be higher or below the face value. As per the market value, your return on investment may be below the coupon rate or higher.
For example, If 10% debentures of ₹100 face value are purchased for ₹ 150 at the market price.
The debentures holder would receive interest of 10% of ₹100 (face value). But if you calculate the Return on investment is 6.67%.
On the other hand, if the market value is below the face value. The ROI would be higher than the coupon rate.
