CFA Level I · CFA Level I Exam · Fixed-Income Instrument Features
A bond's indenture states that the issuer will repay the principal in a single payment on the stated maturity date, with periodic coupon payments until then. The feature that determines the amount of each coupon payment is most likely the:
The coupon rate applied to the par value determines each coupon payment. The price paid and the market yield change the bond's value and return to the buyer, but the contractual interest payment is fixed by the coupon rate times the principal amount.
- Aissue price
- Bcoupon rate applied to par valueCorrect
- Cyield to maturity at issuance
Explanation
Periodic coupon payments equal the coupon rate multiplied by the par (principal) value. The issue price and the market yield affect the bond's price but do not change the contractual coupon amount.
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