What is the dierence between a coupon bond and an annuitySol

What is the dierence between a coupon bond and an annuity?

Solution

Coupon bond : - A bond represents a contract under which a borrower promises to pay interest and principal on specific dates to the holders of the bond. The bond carries a specific interest rate which is called the coupon rate. The interest payable to the bond holder is simply par value of the bond X coupon rate. Therefore a coupon bond can be considered as a bond which pays regular interest on specific dates to the holder of the bond.

Annuity : An annuity is a stream of constant cash flow (payment or receipt) occuring at regular intervals of time. Example : ; The premium payments for an insurance policy are an annuity. When the cash flow occur at the end of each period , the annuity is called an ordinary annuity or a deferred annuity. When the cash flows occur at the beginning of each period, the annuity is called an annuity due.