1. What is a Coupon Payment?

A coupon payment is the periodic interest payment made to bondholders during the life of the bond. It represents the interest earned on the bond's face value based on the coupon rate and payment frequency.

2. How Does the Calculator Work?

The calculator uses the coupon payment formula:

Where:

• \( Face \) — Face value of the bond in USD
• \( Coupon\ Rate \) — Annual coupon rate as a decimal
• \( Payments \) — Number of payments per year

Explanation: The formula calculates the periodic payment by dividing the total annual interest by the number of payments per year.

3. Importance of Coupon Payments

Details: Coupon payments are crucial for bond investors as they represent the regular income stream from the bond investment. The payment amount affects the bond's yield and pricing in the secondary market.

4. Using the Calculator

Tips: Enter the bond's face value in USD, the annual coupon rate as a decimal (e.g., 0.05 for 5%), and the number of payments per year (typically 1, 2, or 4). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between coupon rate and yield?
A: The coupon rate is fixed and based on the face value, while yield varies with the bond's current market price.

Q2: How often are coupon payments typically made?
A: Most bonds pay semiannually (2 payments/year), though some pay quarterly or annually.

Q3: What happens if I buy a bond between payment dates?
A: You'll pay accrued interest to the seller for the period since the last coupon payment.

Q4: Do zero-coupon bonds have coupon payments?
A: No, zero-coupon bonds are issued at a discount and pay no periodic interest.

Q5: How does the coupon rate affect bond price?
A: Bonds with higher coupon rates generally trade at higher prices than similar bonds with lower rates.