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What is the amount of each coupon payment for a 6 percent bond with a face value of $1,000 and semiannual interest payments?

Options:
A. $30.00
B. $60.00
C. $32.50
D. $62.50

Answer :

To determine the amount of each coupon payment for a bond, we need to focus on the bond's coupon rate rather than its yield to maturity or other characteristics like the current market yield.

Here's how you can calculate the coupon payment:

  1. Understand the Coupon Rate: The bond has a coupon rate of 6%. This means it pays 6% of its face value as interest each year.

  2. Calculate the Annual Coupon Payment:

    [tex]\text{Annual Coupon Payment} = \text{Coupon Rate} \times \text{Face Value}[/tex]

    [tex]\text{Annual Coupon Payment} = 6\% \times \$1,000 = \$60[/tex]

  3. Determine the Number of Payments: Since the bond makes semiannual interest payments, there are 2 coupon payments each year.

  4. Calculate Each Coupon Payment:

    Divide the annual coupon payment by the number of payments per year:

    [tex]\text{Coupon Payment} = \frac{\text{Annual Coupon Payment}}{2} = \frac{\$60}{2} = \$30[/tex]

Therefore, the amount of each coupon payment is $30.00.

The correct option is 30.00.

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Rewritten by : Jeany

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