Final answer:
The annual coupon payment of a bond is calculated by multiplying the face value of the bond by the coupon rate. For a $1,000 face value bond with an 8% coupon rate, the annual coupon payment would be $80. The present value of the bond changes with variations in the discount rate.
Step-by-step explanation:
If a coupon bond has two years to maturity, a coupon rate of X%, and a face value of $1,000, the annual coupon payment would be calculated by multiplying the face value by the coupon rate. Therefore, the formula to calculate the annual coupon payment is:
Annual Coupon Payment = Face Value × Coupon Rate
For example, if the coupon rate is 8%, you would calculate the annual coupon payment as follows:
Annual Coupon Payment = $1,000 × 0.08 = $80
In the context of the example provided about the two-year bond issued at $3,000 with an 8% interest rate, the annual coupon payment is calculated as:
Annual Coupon Payment = $3,000 × 0.08 = $240
To calculate the present value of this bond, you would need to discount the future payments of interest and the principal back to today's dollars using the discount rate. If the discount rate is 8%, the present value calculations would reflect the value of the bond at that rate.
However, if interest rates rise and the discount rate becomes 11%, the present value of the bond will decrease to reflect the higher discount rate.