On which one of the following dates is the principal amount of a semiannual coupon bond repaid?

a. The entire bond is repaid on the issue date.

b. Half of the principal is repaid evenly over each coupon period with the remainder paid on the issue date.

c. The entire bond is repaid on the maturity date.

d. Half of the principal is repaid evenly over each coupon period with the remainder paid on the maturity date.

e. A portion of the principal is repaid on each coupon date.

Question

Business

Maria Simpson

24 May, 11:09

On which one of the following dates is the principal amount of a semiannual coupon bond repaid?

a. The entire bond is repaid on the issue date.

b. Half of the principal is repaid evenly over each coupon period with the remainder paid on the issue date.

c. The entire bond is repaid on the maturity date.

d. Half of the principal is repaid evenly over each coupon period with the remainder paid on the maturity date.

e. A portion of the principal is repaid on each coupon date.

+1

Answers (1)

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Gael · Answer 1

Correct option is (c)

Explanation:

Principal amount of bond is also called face value of bond that is repaid in full at maturity. Bonds are issued for a fixed period called maturity period that could be 3 years, 5 years or 10 years. At the end of this period, Bond's face value that could be $100 or $1,000 is repaid fully. Repayment of principal amount is not dependent on frequency of coupon payment.

Coupon payments are paid annually or semi annually as the case may be. This is annual interest rate that is paid to the bond holder till maturity of bond. It is calculated on the face value. For example, 5% bond of face value $1,000 is issued. Semi annual coupon payment will be 0.025 * 1,000 = $25.