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Difficulty: MediumDebt Securities and Bond Structure

An investor holds 15 corporate bonds, each having a par value of $1,000\$1,000 and a stated annual coupon rate of 5.2%5.2\%. The issuer pays interest semi-annually. What total dollar amount of interest will the investor receive from this position in a single 6-month payment period?

Answer: 390 $

Answer

The investor will receive a total semi-annual interest payment of $390\$390.
The stated coupon rate of 5.2%5.2\% on a $1,000\$1,000 par value bond yields an annual interest payment of $52\$52 per bond ($1,000×0.052\$1,000 \times 0.052). Because bond coupon payments are disbursed semi-annually, each bond pays $26\$26 every 6 months ($52/2\$52 / 2). For a portfolio holding of 15 bonds, the total dollar amount received per payment period is $390\$390 ($26×15\$26 \times 15).

Step-by-Step Solution

1
Calculate the annual coupon interest per bond.
$1,000×0.052=$52\$1,000 \times 0.052 = \$52 per bond per year.
The stated nominal coupon rate represents the annual interest percentage paid based on par value.
2
Determine the semi-annual coupon payment per bond.
$52/2=$26\$52 / 2 = \$26 per bond every 6 months.
Standard corporate bonds disburse interest payments twice per year (semi-annually).
3
Calculate the total semi-annual interest for the position of 15 bonds.
$26×15=$390\$26 \times 15 = \$390.
Multiplying the single semi-annual payment per bond by the total quantity of bonds held yields the net cash distribution received.

Key Concept

Calculation of semi-annual bond interest payments based on nominal coupon rate and par value.
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Topics

Debt Securities and Bond Structure

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