CFA Level I Exam · Fixed-Income Cash Flows and Types

Fixed-Income Instrument Features: Issuer, Maturity, Par Value and Coupon

Q: What is the difference between par value and market value of a bond?

Par value is the principal the issuer repays at maturity, and it is the base for coupon payments. Market value is the current price, which changes with interest rates and credit risk. A bond can trade at a premium, at par, or at a discount.

Q: How do I calculate the coupon payment of a bond?

Multiply the coupon rate by the par value to get the annual coupon. Then divide by the number of payments per year. For example, 5% on a par of $1,000 paid semiannually gives $25 per payment.

Q: What is the maturity date of a bond?

It is the date when the issuer makes the final payment and repays the par value. Time remaining until that date is called the tenor or term to maturity.

Q: Why does currency denomination matter for a bond?

Coupons and principal are paid in a specific currency. If you hold a bond in a currency other than your own, exchange rate moves affect your return. Some bonds pay coupons and principal in different currencies.

Updated 7 October 2026 · Fact-checked

A fixed-income instrument is defined by a few features: the issuer, the maturity date, the par value (principal), the coupon rate and frequency, and the currency. To solve questions, identify each feature from the stem, then compute the coupon as coupon rate × par value ÷ payments per year.

Understand Fixed-Income Instrument Features

A bond is a loan that you, the investor, make to the issuer. The issuer promises to pay interest and return the borrowed amount on a set date. Every bond is described by a small set of features. These features are written in the bond's contract, called the indenture.

The issuer is who owes the money: a corporation, a government, or a government agency. The maturity date is when the final payment is due. Tenor (time to maturity) is the time remaining until that date. Bonds with an original maturity of one year or less are usually called money market securities. Longer ones are capital market securities.

Par value is also called principal, face value or maturity value. It is the amount the issuer repays at maturity, and it is the base on which coupons are calculated. Market value (the price) is what the bond trades for today. Price can be above par (premium), equal to par, or below par (discount). Par value is fixed by the contract. Price moves with market interest rates and credit risk.

The coupon rate is the annual interest rate stated on the bond. Coupon payment per period = coupon rate × par value ÷ coupon frequency. Frequency is the number of payments per year. Annual is common for many European bonds. Semiannual is common for US bonds. Quarterly and monthly also exist.

The currency denomination is the currency of the payments, such as USD or EUR. Some issuers sell bonds in a currency different from their home currency. A dual-currency bond pays coupons in one currency and principal in another. Currency matters because the investor's returns depend on exchange rates if the bond is not in their home currency.

Key formulas to remember

Periodic coupon payment: Coupon per period = (coupon rate × par value) ÷ m; m is the number of coupon payments per year. Coupon rate is annual and quoted on par, not on price.
Annual coupon income: Annual coupon = coupon rate × par value; Use par value, never market price.
Number of remaining payments: Remaining payments = years to maturity × m; Check that the time is in years before multiplying.
Premium, par, discount: Price > par: premium. Price = par: par. Price < par: discount.; Price is quoted as a percentage of par, so 98.50 means 98.50% of par.
Current yield: Current yield = annual coupon ÷ bond price; Shows that coupon rate and yield differ unless price equals par.

How to solve Fixed-Income Instrument Features questions

Use this method for any question that gives bond details and asks you to identify a feature or compute a cash flow.

1Underline the issuer, maturity, par value, coupon rate, coupon frequency and currency in the stem.
2Separate what is fixed by contract (par, coupon rate, frequency, maturity, currency) from what moves (price, yield).
3Convert the coupon rate to a currency amount using par value, not price.
4Divide by the number of payments per year to get the periodic coupon.
5Count the remaining periods: years × frequency. Remember the final payment is the last coupon plus par.
6Check the currency of each cash flow before comparing or summing amounts.
7Compare price with par if asked about premium or discount, then match it to your option.

Quickest way: Par-times-rate shortcut

When to use it: Use when the stem gives a coupon rate, par value and frequency and you only need the cash flow or the last payment.

Annual coupon = rate × par (move the decimal).
Divide by frequency: 2 for semiannual, 4 for quarterly, 12 for monthly.
Final payment = periodic coupon + par.
Eliminate any option that uses the market price in the coupon calculation.
If options are in ascending order, check the size: a semiannual coupon should be half the annual one.

Common mistakes in Fixed-Income Instrument Features

Calculating the coupon from the market price instead of par value.
The price is often the number given first or most prominently in the stem.
Fix: Coupon = coupon rate × par value. Price never enters the coupon calculation.
Forgetting to divide by the payment frequency.
The coupon rate is quoted annually, so students treat it as the amount paid each time.
Fix: Always ask how many payments a year, then divide the annual coupon by that number.
Assuming coupon rate equals yield.
Both are percentages and both are called rates.
Fix: Coupon rate is fixed by the contract on par. Yield depends on the price paid and market conditions. They match only when the bond trades at par.
Ignoring the final principal payment in the last period.
Students focus on coupons and forget that par is repaid at maturity.
Fix: Final cash flow = last coupon + par value for a standard bullet bond.
Treating par value as what the bond is worth today.
Par is also called face value, which sounds like current value.
Fix: Par is the amount repaid at maturity. Market value is the current price and can be above or below par.
Overlooking the currency of the cash flows.
Questions about features seem simple, so students skim the currency detail.
Fix: Note the currency of coupons and principal. For dual-currency bonds, they can differ.

Worked examples

Example 1

A corporate bond issued by a company has a par value of €1,000, a coupon rate of 6% paid semiannually, and 4 years to maturity. It currently trades at €1,040. What is each coupon payment, and how many payments remain? Options for the coupon: A. €30, B. €60, C. €62.40.

Show the solution

Annual coupon = 6% × €1,000 = €60.
Frequency is semiannual, so m = 2.
Coupon per period = €60 ÷ 2 = €30.
Option C uses the price (6% × €1,040 = €62.40), which is wrong.
Remaining payments = 4 × 2 = 8.

Answer: A. Each coupon is €30, and 8 payments remain.

Example 2

A bond has a par value of $5,000, a 3.2% coupon paid quarterly, and is priced at 97.50 (percent of par). What is the quarterly coupon, and does the bond trade at a premium or a discount? Options for the coupon: A. $40, B. $41.60, C. $160.

Show the solution

Annual coupon = 3.2% × $5,000 = $160.
Quarterly means m = 4.
Coupon per period = $160 ÷ 4 = $40.
Price = 97.50% of par = $4,875, which is below par.
Below par means the bond trades at a discount.

Answer: A. The quarterly coupon is $40, and the bond trades at a discount.

Exam tips

Expect straightforward items: identify a feature from a description or compute a coupon. Read the stem once for features and a second time for what is asked.
Quoted prices are percentages of par. Convert to currency amounts only if the question asks for it.
Wrong options are often built from the common errors: using price instead of par, or skipping the frequency division. Match your answer against these traps.
Know that par, coupon rate, frequency and maturity are fixed by contract, while price and yield change. Many conceptual items test this split.
There is no penalty for a wrong answer, so if time is short, eliminate the option that uses price for the coupon and pick from the rest.

Practice questions from Fixed-Income Cash Flows and Types

Fixed-Income Instrument Features: frequently asked questions

What is the difference between par value and market value of a bond?

Par value is the principal the issuer repays at maturity, and it is the base for coupon payments. Market value is the current price, which changes with interest rates and credit risk. A bond can trade at a premium, at par, or at a discount.

How do I calculate the coupon payment of a bond?

Multiply the coupon rate by the par value to get the annual coupon. Then divide by the number of payments per year. For example, 5% on a par of $1,000 paid semiannually gives $25 per payment.

What is the maturity date of a bond?

It is the date when the issuer makes the final payment and repays the par value. Time remaining until that date is called the tenor or term to maturity.

Why does currency denomination matter for a bond?

Coupons and principal are paid in a specific currency. If you hold a bond in a currency other than your own, exchange rate moves affect your return. Some bonds pay coupons and principal in different currencies.