Examkin

Question

Difficulty: EasyGovernment, Municipal, and Corporate Bonds

An investor purchases 55 corporate bonds in the secondary market at a price of 9696 (96%96\% of par value). Each bond has a par value of $1,000\$1,000 and carries a stated annual coupon rate of 5.5%5.5\%. What is the total annual dollar amount of coupon interest income the investor will receive from these 55 bonds?

Answer: 275 $

Answer

The total annual coupon interest income received is $275.
Annual coupon interest is fixed and calculated as a percentage of the bond's par value (1,000),regardlessofwhetherthebondtradesatadiscountorpremiuminthesecondarymarket.Eachbondpays1,000), regardless of whether the bond trades at a discount or premium in the secondary market. Each bond pays 5.5\%of of \1,0001,000, which equals $55\$55 per year. For 55 bonds, total annual coupon interest income is 5×$55=$2755 \times \$55 = \$275.

Step-by-Step Solution

1
Calculate annual interest per bond using par value ($1,000) and stated coupon rate (5.5%).
Annual interest per bond = $1,000×0.055=$55\$1,000 \times 0.055 = \$55.
Bond coupon rates are always paid as a fixed percentage of the bond's par (face) value, regardless of secondary market price fluctuations.
2
Multiply annual interest per bond by total number of bonds held (5).
Total annual interest = $55×5=$275\$55 \times 5 = \$275.
The investor receives interest payments for all 5 bonds owned.

Key Concept

Bond Coupon Payment Calculation
Rate this question

Topics

Government, Municipal, and Corporate Bonds

More questions from this topic