Jason owns a bond with a par value of $1000 issued by Ozemoore Corporation that will mature in seven years. The coupon rate on the bond is 7 percent, and he bought the bond for $900. Assuming Ozemoore lives up to its financial obligations and that he doesn't sell the bond, Jason can expect to receive $70 in interest from Ozemoore's bond over the next year.

Question

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The coupon rate of 7% on a par value of $1000 means that Jason will receive $70 in interest each year. Since he bought the bond for $900, his yield will be slightly higher than 7% (as he paid less than the par value), but assuming Ozemoore continues to make its interest payments and he holds the bond until maturity, he can expect to receive $70 in interest over the next year.

Jason Owns a Bond with a Par Value of $1000