This morning, Alicia bought a ten-year 7% coupon bond that pays interest annually. She paid $994 for a $1,000 bond. If the market interest rate on this type of bond declines to 6.5% tonight, how much will Alicia receive for her first interest payment?

Question

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Alicia will receive the coupon payment based on the bond's coupon rate, which is 7% of the bond's face value of $1,000. Therefore, the first interest payment will be 7% of $1,000, which is $70.00. The market interest rate change does not affect the coupon payment amount.

This Morning, Alicia Bought a Ten-Year 7% Coupon Bond That