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Difficulty: EasyDebt Securities and Bond Structure

An investor holds 1010 corporate bonds with a par value of $1,000\$1,000 each. The bonds pay a stated annual coupon rate of 5.80%5.80\% in semi-annual installments. What total dollar amount of interest will the investor receive every six months?

Answer: 290 $

Answer

The investor will receive a total interest payment of $290 every six months.
The correct semi-annual payment is 290.Tofindthis,multiply290. To find this, multiply 10 bonds by their par value of 1,000togetatotalparvalueof1,000 to get a total par value of 10,000. Applying the annual coupon rate of 5.80% yields 580intotalannualinterest.Dividing580 in total annual interest. Dividing 580 by 2 gives the semi-annual payment of $290 received every six months.

Step-by-Step Solution

1
Calculate total par value
$10,000
Multiply the number of bonds owned by the face value of each bond (10×$1,000=$10,00010 \times \$1,000 = \$10,000).
2
Calculate annual interest income
$580
Multiply the total par value by the annual coupon rate ($10,000×0.058=$580\$10,000 \times 0.058 = \$580).
3
Calculate semi-annual payment amount
$290
Divide the total annual interest by 2 because corporate bonds pay interest semi-annually ($580/2=$290\$580 / 2 = \$290).

Key Concept

Calculating semi-annual coupon payments based on total bond par value and nominal coupon rate.
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Topics

Debt Securities and Bond Structure

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