Question

Samuel owns a bond with a par value of $5,000 and a coupon rate of 5 percent. he will receive _____ in annual interest until the bond reaches maturity, or until he sells the bond to someone else.

Answer 1

Given:
Par value of the bond : 5,000
coupon rate of the bond: 5%

par value x coupon rate = annual interest

5,000 x 5% = 250 annual interest

Samuel will receive an annual interest of $250 until the bond reaches maturity, or he sells the bond to someone else.

Regardless of the changes in bond prices in the market, Samuel will always receive a fixed annual interest of 250 from his bond.