A semi-annual coupon rate of 7% means that the bond will pay $70 interest every 6 months

Finance Nov 13, 2020

A semi-annual coupon rate of 7% means that the bond will pay $70 interest every 6 months. True O False

Expert Solution

False

Coupon rates are always quoted annual. Theerfore, coupon rate of a semi-annual bonds needs to be converted to semi annual rate first. Therefore, semi annula rate will be 7% / 2 = 3.5%.

Semi annual coupon = (3.5 / 100) * 1000 = 35

Therefore, coupon payments will be $35.

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