Coupon flat rate meaning

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Flat Rate Vs Hourly From Shop Owners View Point

In the case of a bond, the rate is adjusted according to the change in some benchmark rate, such as the prime rate. For instance, if a quarterly-paying bond carries an interest rate of 2 percent on March 31 and the benchmark rate is one-tenth of a percentage point higher on June 30, the bond's interest rate will be adjusted upward to 2.

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A flat rate is a method used by producers for pricing services relating to some product, such as financial assets in the case of an investment house. A flat rate is a price rather than a percentage and is typically applied where variable sales volume is concerned. The greatest advantage of a fixed rate is that it provides a level of predictability for more risk-averse investors, in terms of debt securities called fixed-income items. For instance, the consistent periodic interest coupon payments of a bond come directly from a fixed, unchanging interest rate.

Bond Yield Rate vs. Coupon Rate: What's the Difference?

A flat rate provides some measure of protection for producers, as it ensures the existence of a revenue floor in a business model in which most revenue is based on the high-volume sale of goods. Despite the stability a fixed rate might provide in many instances, it can work to the disadvantage of the party concerned should the general level of interest rates rise.

Under such circumstances, the market value of fixed-rate items, like bonds, declines, and this can create a hardship for holders who wish or need to sell their holdings. Likewise, a flat-rate service fee may work to a company's disadvantage should an unusual level of service need to be performed for which little or no sales volume is produced. An example would be a broker spending several hours advising a client who purchases no securities.

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Nicholas B. Sisson holds a B. Technical Communications, Ltd.