If a bond has a face value of $1,000 and the bondholder receives coupon payments of $27.50 semi-annually, the bond's coupon rate is:
A) 2.75%
B) 5.50%
C) 27.5%
D) a value that cannot be determined from the information provided.

Question

Quizplus · Accepted Answer

The coupon rate is the annual interest payment divided by the face value (in percentage terms).

Since the bond pays semi-annual coupons of $27.50, the annual coupon payment is:
2 x $27.50 = $55

Dividing the annual coupon payment by the face value of $1,000 yields:
$55 / $1,000 = 0.055 or 5.50%

Therefore, the bond's coupon rate is 5.50%.

If a Bond Has a Face Value of $1,000 and the Bondholder