Questions: What is the coupon payment of a 25-year 500 bond with a 10% coupon rate with quarterly payments?

Transcript text: Question 1 of 45 What is the coupon payment of a 25 -year $\$ 500$ bond with a $10 \%$ coupon rate with quarterly payments?

Solution

Solution Steps

To find the coupon payment of a bond, we need to calculate the periodic payment based on the bond's face value, coupon rate, and payment frequency. The coupon payment is determined by multiplying the bond's face value by the coupon rate and then dividing by the number of payments per year.

Step 1: Identify Given Values

We are given the following values for the bond:

Face value ($FV$) = \$500
Annual coupon rate ($r$) = 10\% = 0.10
Number of payments per year ($n$) = 4 (quarterly payments)

Step 2: Calculate the Coupon Payment

The coupon payment ($C$) can be calculated using the formula: \[ C = \frac{FV \times r}{n} \] Substituting the given values: \[ C = \frac{500 \times 0.10}{4} = \frac{50}{4} = 12.5 \]

Final Answer

The coupon payment of the bond is \$\boxed{12.5}\$.

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