CFA Level I · CFA Level I Exam · Fixed-Income Cash Flows and Types
A company issues a bond with a 6% annual coupon, paid semiannually, on a face value of 1,000,000. The first coupon payment, in currency units, is closest to:
The first coupon is about 30,000. The annual coupon is 6% of 1,000,000, which is 60,000, and with semiannual payments each coupon is half of that. Choosing 60,000 ignores the payment frequency, while 120,000 wrongly multiplies by two.
- A30,000Correct
- B60,000
- C120,000
Explanation
Annual coupon = 6% × 1,000,000 = 60,000. Semiannual payments divide this by 2, giving 30,000. The 60,000 option ignores the frequency, and 120,000 doubles instead of dividing.
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