Final answer:
A bond's interest rate, or coupon rate, is impacted by market interest rates, the credit rating of the issuer, and the term to maturity of the bond. These factors collectively determine the attractiveness and the yield required by investors to compensate for risks including credit risk and interest rate risk.
Step-by-step explanation:
The factors that impact a bond's interest rate, or coupon rate, are indeed all of the above: market interest rates, the credit rating of the issuer, and the term to maturity of the bond.
Market interest rates influence a bond's coupon rate significantly because they affect the cost of borrowing in the economy. When market rates are high, new bonds will typically have to offer higher interest rates to attract investors. Conversely, if market rates fall, new bonds will likely carry lower interest rates.
The credit rating of the issuer reflects the perceived risk associated with the bond. Higher credit risks are generally associated with higher interest rates to compensate investors for the increased risk. Lastly, the term to maturity can affect the coupon rate, with longer-term bonds usually offering higher rates to compensate for the increased risk of interest rate changes over time.