A corporation issues a bond with a face value of $10,000 and a coupon rate of 5.65% that matures on 15/07/2015. The holder of such a bond receives coupon payments of $282.50. How frequently are coupon payments made in this case?

Question

Quizplus · Accepted Answer

We need to calculate the number of coupon payments that would be made until the maturity date of 15/07/2015.

The coupon payment is given as $282.50 which represents 5.65% of the face value of the bond, i.e,

$282.50 = 0.0565 * $10,000

We can use this information to calculate the annual coupon payment as:

Annual coupon payment = 0.0565 * $10,000 = $565

Since the bond matures on 15/07/2015, we can count the number of full six-month periods until then.

From now until 15/07/2015: 
- 01/01/2015 to 30/06/2015 (1st coupon payment received on 15/01/2015)
- 01/07/2014 to 31/12/2014 (coupon payments already made)
- Total 2 coupon payments

Therefore, coupon payments are made semiannually.

A Corporation Issues a Bond with a Face Value of $10,000