Fixed-Income Features: Coupon Rate and Frequency

What would _most likely_ be the coupon payment of a bond that has a 9% coupon rate, a par value of 1,000, and a market price of 1,400?

Incorrect. This answer would be correct if the coupon rate were arrived at by dividing the par value by the market price of a bond. Coupon payments are actually calculated by taking the coupon rate given to the bond, in this example 9%, and multiplying by the face value of the bond. It is important to remember that coupon payments are always based on the par value and not the market price.

Correct! A bond's coupon payment is the product of the annual coupon rate and the bond's par value. In this example, the par value of 1,000 is multiplied by the 9% coupon rate to arrive at the coupon payment of 90.

Incorrect. This answer is incorrect because it uses the bond's market price in calculating the coupon payment, instead of using the bond's par value to make the calculation. A bond coupon payment is the product of the annual coupon rate and the bond's par value, not the price of the bond.

1.40

90.00

126.00