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A bond's coupon rate can be calculated by dividing the sum of the security's annual coupon payments and dividing them via the bond's par value. For example, a bond issued with a face price of $1,000 that will pay a $25 coupon semiannually has a coupon charge of 5%.
If an investor purchases a $1,000 ABC Company coupon bond and the coupon price is 5%, the company affords the investor with a 5% pastime every year. This potential the investor gets $50, the face value of the bond derived from multiplying $1,000 through 0.05, every year.
What is the coupon price used to calculate?
The term “coupon rate” specifies the charge of charge relative to a bond's par value. Secondly, a bond coupon is regularly expressed in a greenback amount. For example, a financial institution might advertise its $1,000 bond with a $50 biannual coupon. This is every other way of pronouncing that it will pay a 10% return.
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