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An investor holds a portfolio of 25 corporate bonds, each having a par value of $1,000. The bonds carry a nominal coupon rate of 6.4% per annum with semi-annual coupon payments. If the investor purchased all 25 bonds at a market price quote of 98.50, what is the total dollar amount of semi-annual coupon interest the investor will receive in a single semi-annual payment across the entire portfolio?

Answer: 800 dollars

Answer

The total semi-annual coupon payment received by the investor across all 25 bonds is $800.

Coupon interest is calculated by multiplying the nominal coupon rate by the par value of the bond (

1,000 * 6.4% =

64 per year). Because bonds pay semi-annually, each bond pays half of its annual coupon every six months (

64 / 2 =

32 per bond). For 25 bonds, the total semi-annual interest received is 25 *

32 =

800. The market price (98.50 or $985 per bond) does not impact the dollar amount of coupon interest paid by the issuer.

Step-by-Step Solution

1

Determine the annual coupon payment per bond using the par value and nominal coupon rate.

Each bond pays

1,000 * 0.064 =

64.00 in coupon interest per year.

The nominal coupon rate is calculated based on the bond's par value ($1,000), regardless of its secondary market purchase price.

2

Divide the annual coupon payment by 2 to determine the semi-annual payment per bond.

Each bond pays

64.00 / 2 =

32.00 every six months.

Bonds typically pay interest semi-annually (twice per year).

3

Multiply the single semi-annual payment amount per bond by the number of bonds in the portfolio.

32.00 * 25 =

800.00 total semi-annual interest payment.

The total cash flow received every six months is the sum of payments for all 25 bonds.

Key Concept

Calculation of semi-annual bond interest income based on par value and coupon rate

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