Question

A 3.5 percent coupon bond is currently quoted at 91.3 and has a face value of $1,000. What is the amount of each semi-annual coupon payment if you own three (3) of these bonds?

Answer 1

The semi-annual coupon payment on the three bonds is $52,5

Step-by-step explanation:

The bond pays 3.5 percent annually and ultimately pays 3.5%/2 semi-annually.This means the bond pays 1.75 % coupon interest per year.

As a result three of the bonds give semi-annual coupon is computed below:

1.75%*$1000*3=$52.5

Three of such bonds pay $52.50 in coupon semi-annually.

It is important to note that coupon interest is calculated on par value while effective interest is computed on issue price.

Invariably, the three bonds receive the sum of $105 in coupon interest yearly.