For what is the coupon rate used to compute?
A) Rate that investors expect to earn on this investment
B) Interest payments paid to bondholders during the life of the bond issue
C) Bond issue price
D) Fee paid to an underwriter for determining the bond price

Question

Quizplus · Accepted Answer

Coupon rates are used to compute the dollar amount of interest payments paid to the bondholder semi-annually. This rate is often stated in the bond contract and, therefore, remains fixed. Answer A describes the market rate, a continuously fluctuating number, which is used to price the bond issue. Answer C equals the present value of the expected cash flows to the bondholder. Answer D is a fee set by the underwriters, which prepare and sell the bond issue.

For What Is the Coupon Rate Used to Compute