Question

    Which term refers to the specific rate of interest

    carried by a bond?
    A Face Value Correct Answer Incorrect Answer
    B Yield-to-Maturity Correct Answer Incorrect Answer
    C Redemption Value Correct Answer Incorrect Answer
    D Coupon Rate Correct Answer Incorrect Answer
    E Interest Rate Correct Answer Incorrect Answer

    Solution

    The coupon rate of a bond is the annual interest rate that the issuer agrees to pay the bondholder until the bond matures. The coupon rate is stated as a percentage of the bond's face value, which is the amount of money that the bondholder will receive at maturity. For example, if a bond has a face value of $1,000 and a coupon rate of 5%, the issuer will pay the bondholder $50 in interest every year until the bond matures. The coupon payments are usually made semi-annually or annually, depending on the terms of the bond.

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