A corporate bond with a par value of 1,000 is quoted at 96 and has a published current yie… — FINRA SIE (Securities Industry Essentials)

A corporate bond with a par value of $1,000$ is quoted at $96$ and has a published current yield of $6.25\%$ . If the bond pays interest on a semi-annual basis, what is the dollar amount of each individual semi-annual coupon payment?

Answer: 30 $

Answer

The dollar amount of each individual semi-annual coupon payment is $30.

To calculate the semi-annual interest payment, first determine the market price by taking 96% of the

1,000 par value, which equals

960. Using the current yield relationship (

\text{Current Yield} = \frac{\text{Annual Coupon}}{\text{Market Price}}

), find the annual coupon by multiplying

960 by 6.25%, yielding

60. Finally, divide the

60 annual coupon by 2 to account for semi-annual payments, resulting in

30 per payment.

Step-by-Step Solution

Calculate the market price of the bond

Market Price = $960.00

A bond quoted at 96 trades at 96% of its

1,000 par value (

1,000 * 0.96).

Calculate total annual interest paid by the bond

Annual Interest = $60.00

Current Yield equals Annual Interest divided by Market Price. Therefore, Annual Interest = Market Price * Current Yield ($960 * 0.0625).

Calculate the semi-annual coupon payment amount

Semi-Annual Payment = $30.00

Because bond interest is paid semi-annually (twice per year), the total annual interest is divided by 2 ($60 / 2).

Key Concept

Debt Securities and Bond Structure - Current Yield and Semi-Annual Coupon Calculation

Estimated Time:2m 0s

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