Q. If a bond has coupon rate 3%, isn't it better than a bond with coupon rate 2%?
A. Unfortunately the answer is no, there is no free lunch in this world.
For fixed income investing, what matters is not coupon rate, but yield. If you want to buy the higher coupon rate bond, assume everything else being equal, you will have to pay a premium for it over a bond with 2% coupon rate.
In short, your yield will be the same on either the 2% coupon rate bond or the 3% coupon rate bond.
A. Unfortunately the answer is no, there is no free lunch in this world.
For fixed income investing, what matters is not coupon rate, but yield. If you want to buy the higher coupon rate bond, assume everything else being equal, you will have to pay a premium for it over a bond with 2% coupon rate.
In short, your yield will be the same on either the 2% coupon rate bond or the 3% coupon rate bond.
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