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Homework answers / question archive / A bond has a par value of $100 and a coupon rate of 5%
A bond has a par value of $100 and a coupon rate of 5%. The coupon payment is made annually or semi-annually. What are the periodic interest rate payments?
A floating-rate note makes semi-annual payments in June and December. The interest rate is six-month Libor + 35 bps. Assume six-month Libor is 2% at the end of June 2019 and 3.5% at the end of December 2019. What is the interest rate due in December 2019?
Calculation of periodic interest payment on bond.
Face value or Par value = $100
annual coupon rate. = 5%
Semiannual coupon rate = 5%/2 = 2.5%
Therefore, annual coupon payment =
Face vaule*Coupon rate = 100*5% = $5
Semiannual coupon payment = $100*2.5% = $2.5
(b).
Interest Rate at the end of june 2019, will be applicable for december 2019 interest due
Hence , Interest rate for devember = LIBOR rate end of june 2019 + 35 bps
So, interest rate = 2%+0.35% = 2.35%
