Co-authored by Michael R.
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Lewis Updated: March 29, There are 7 references cited in this article, which can be found at the bottom of the page. Get the bond's face value. The first piece of information is the actual face value of the bond, sometimes called its par value. It's given to you by your broker.
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- Coupon Rate of a Bond.
- The Zero Coupon Bond: Pricing and Charactertistics;
Locate the bond expiration. You'll also need to locate the bond expiration or maturity date. This information is also provided to you by your broker. Find the bond coupon rate. The coupon rate is usually expressed as a percentage e.
What Is a Bond?
Get the current yield, if available. The current yield will show you your return on your bond investment, exclusive of capital gains. The current yield may or may not be provided by your broker.
If it isn't provided, don't worry about it. Use the coupon rate and the face value to calculate the annual payment.
If you know the face value of the bond and its coupon rate, you can calculate the annual coupon payment by multiplying the coupon rate times the bond's face value. Use the current yield to calculate the annual coupon payment. This only works if your broker provided you with the current yield of the bond.
What is a Coupon Payment? - Definition | Meaning | Example
To calculate the payment based on the current yield, just multiply the current yield times the amount that you paid for the bond note, that might not be the same as the bond's face value. This results in a fixed coupon payment each period. In variable coupon payments , the coupon rate varies directly or indirectly with another variable. A change in coupon rate means a change in coupon payment.
In deferred coupon bonds , initial coupon payments are deferred for a certain period while in accelerated coupon bonds , the coupon rate is high initially but decreases over the life of the bond. Where F is the face value of the bond, c is the annual coupon rate and n represents the number of payments per year.
Walmart Stores Inc. They carry a coupon rate of 6. The basic math is easy. What should an investor pay for the 1-year coupon? As a rough cut, forgetting the compounding of interest interest-on-interest and the conversion to semiannual yields, we know that 5. Pulling out our trusty bond calculator, we can actually do the calculation.
At a semi-annual yield of 5.
What is a Zero Coupon Bond?
A bond stripped of its coupon and residual parts becomes a zero coupon bond, a reliable security for investors who want a predictable income at a fixed time. What is a Zero Coupon Bond?
Bond Characteristics: What are Bonds?