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Difficulty: EasyDebt Securities and Bond Structure

An investor purchases a corporate bond with a par value of 1,0001,000 that pays a stated annual coupon rate of 5.5%5.5\%. What is the total dollar amount of interest that the bondholder receives annually?

Answer: 55 USD

Answer

The annual dollar amount of interest received by the bondholder is $55.
The dollar amount of annual interest paid on a bond is calculated by multiplying its par value (1,0001,000) by the stated annual coupon rate (5.5%5.5\%). Therefore, 1,000×0.055=1,000 \times 0.055 = 55.

Step-by-Step Solution

1
Identify the par value and coupon rate of the bond.
Par value = 1,0001,000; Coupon rate = 5.5%5.5\%.
Bond coupon payments are calculated relative to par value.
2
Calculate the annual coupon payment in dollars.
1,000×0.055=551,000 \times 0.055 = 55.
Multiplying the par value by the annual coupon rate yields the total annual dollar interest payment.

Key Concept

Calculating annual bond interest payments from par value and nominal coupon rate
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Topics

Debt Securities and Bond Structure

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