EXPECTATIONS, PRICES, COUPONS AND YIELDS.

The article examines the impact of bond coupons on the yield to maturity. Previous research has identified a "coupon effect" wherein the yield on a multiple-period security depends on the coupon, unless equality prevails among all expected, one-period rates. The author presents analysis that demonstrates under what circumstances the coupon effect will be positive or negative. He also shows how conditions of market equilibrium are consistent with differences in yield among multiple-period securities.