Question

What amount of interest is paid per year on a 20-year, 7 percent coupon corporate bond with a $1,000 face value and semiannual interest payments

Answer 1

On a 20-year, 7 percent coupon bond with $1,000 face value and semiannual payments, an investor would receive $70 in interest payments annually.

Step-by-step explanation:

The student is asking about the interest that would be paid each year on a 20-year, 7 percent coupon corporate bond with a face value of $1,000 and semiannual interest payments.

To calculate the annual interest paid on the bond, we need to take the face value of the bond and apply the coupon rate to it. Since interest is paid semiannually, the coupon rate per period is halved. For a 7 percent annual coupon rate, this means each semiannual payment will be 3.5 percent of the face value.

Annual interest payment = Face value × Annual coupon rate
= $1,000 × 0.07
= $70 per year

Thus, the bondholder would receive $70 per year in interest payments.

Answer 2

The Interest of $70 is paid per year.

Step-by-step explanation:

The coupon rate is the rate of interest that is offered to the bondholder against the purchase of the bond for a specific period of time.

Payment of Interest is made using the coupon rate and face value of the bond . We use following formula to calculate the payment of the interest.

Payment of Interest = Coupon rate x Face value of the bond

Payment of Interest = $1,000 x 7%

Payment of Interest = $70