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27 November, 14:53

Mike invests $2,000 in a new bond issued with a coupon rate of 5%. If the bond issuer makes semiannual payments, what is the coupon payment that Mike will receive?

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  1. 27 November, 15:11
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    Answer: $50

    Explanation:

    Coupon Payment = Amount of investment x rate of interest x period

    = 2000 x 5%x 6/12

    = $50

    The face value of the bond is used for the calculation of the interest. Interest is the coupon payment that Mike will receive for his investment in bond. The coupon payment represents the yield of the bond for the year. As it is semi annual payment the coupon payment will be made twice a year and six months once. So the coupon payment annually will be $100 for this new bond.
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