CMA Study Group

Hello Everyone,

Hope everything fine with you!

I am preparing for the CMA P2 and got an question for Bonds 

A corporation has just issued a 10-year bond with a coupon rate of 6% and semiannual coupon payments. The bond was issued to yield 8%, and the issue price was $864.10. What is the dollar amount of coupon interest paid by the corporation every six months?

Could anyone tell why it is 30?

below is the answer from Wiley CMAexcel 
The dollar amount of coupon interest paid by the corporation every six months = $1,000 par value × 0.06 ÷ 2 = $30.

Thanks

------------------------------
Nancy Yang

------------------------------

Hello Xingin,

Hope you are safe & doing well in Corporate Finance section.

It is mentioned that the coupon payment (Interest) is paid semiannually, this means half of 6% (Annual interest = $60) is paid every 6 months (As required).  

Important note:
You have to be careful with this kind of (Semiannual) Bonds also when you calculate the bond's value:

1. Double the bond duration (10 years = 20)
2. Cut the market interest rate into half (8% / 2 = 4.0%)
3. Use both steps for calculating PV of $1 annuity and PV of future $.

Wish you best of luck, success, safe & healthy condition

Kind regards

------------------------------
Samer Ahmad, FMVA, SCA
Kuwait
------------------------------

Original Message:
Sent: 06-09-2020 01:19 PM
From: Xinqin Yang
Subject: What is the dollar amount of coupon interest paid by the corporation every six months

Hello Everyone,

Hope everything fine with you!

I am preparing for the CMA P2 and got an question for Bonds

A corporation has just issued a 10-year bond with a coupon rate of 6% and semiannual coupon payments. The bond was issued to yield 8%, and the issue price was $864.10. What is the dollar amount of coupon interest paid by the corporation every six months?

Could anyone tell why it is 30?

below is the answer from Wiley CMAexcel
The dollar amount of coupon interest paid by the corporation every six months = $1,000 par value × 0.06 ÷ 2 = $30.

Thanks

------------------------------
Nancy Yang

------------------------------

Thanks all for your kind support. One more question, for the par value, it is ok to take it as $1000 always?

thanks 

Nancy
Original Message:
Sent: 06-09-2020 03:12 PM
From: Samer Ahmad
Subject: What is the dollar amount of coupon interest paid by the corporation every six months

Hello Xingin,

Hope you are safe & doing well in Corporate Finance section.

It is mentioned that the coupon payment (Interest) is paid semiannually, this means half of 6% (Annual interest = $60) is paid every 6 months (As required).

Important note:
You have to be careful with this kind of (Semiannual) Bonds also when you calculate the bond's value:

1. Double the bond duration (10 years = 20)
2. Cut the market interest rate into half (8% / 2 = 4.0%)
3. Use both steps for calculating PV of $1 annuity and PV of future $.

Wish you best of luck, success, safe & healthy condition

Kind regards

------------------------------
Samer Ahmad, FMVA, SCA
Kuwait

Original Message:
Sent: 06-09-2020 01:19 PM
From: Xinqin Yang
Subject: What is the dollar amount of coupon interest paid by the corporation every six months

Hello Everyone,

Hope everything fine with you!

I am preparing for the CMA P2 and got an question for Bonds

A corporation has just issued a 10-year bond with a coupon rate of 6% and semiannual coupon payments. The bond was issued to yield 8%, and the issue price was $864.10. What is the dollar amount of coupon interest paid by the corporation every six months?

Could anyone tell why it is 30?

below is the answer from Wiley CMAexcel
The dollar amount of coupon interest paid by the corporation every six months = $1,000 par value × 0.06 ÷ 2 = $30.

Thanks

------------------------------
Nancy Yang

------------------------------

Hello Nancy,

Trust you are safe & doing well in Part-2

When the par / face value is not given, it is always considered to be $1,000

Please review page 241 in the Exam Support Package, interesting MCQ 25 (CSO: 2B2c LOS: 2B2r) for proof of calculation.


Kind regards​

------------------------------
Samer Ahmad, FMVA, SCA
Kuwait
------------------------------

Original Message:
Sent: 06-26-2020 03:37 AM
From: Xinqin Yang
Subject: What is the dollar amount of coupon interest paid by the corporation every six months

Thanks all for your kind support. One more question, for the par value, it is ok to take it as $1000 always?

thanks

Nancy
Original Message:
Sent: 06-09-2020 03:12 PM
From: Samer Ahmad
Subject: What is the dollar amount of coupon interest paid by the corporation every six months

Hello Xingin,

Hope you are safe & doing well in Corporate Finance section.

It is mentioned that the coupon payment (Interest) is paid semiannually, this means half of 6% (Annual interest = $60) is paid every 6 months (As required).

Important note:
You have to be careful with this kind of (Semiannual) Bonds also when you calculate the bond's value:

1. Double the bond duration (10 years = 20)
2. Cut the market interest rate into half (8% / 2 = 4.0%)
3. Use both steps for calculating PV of $1 annuity and PV of future $.

Wish you best of luck, success, safe & healthy condition

Kind regards

------------------------------
Samer Ahmad, FMVA, SCA
Kuwait

Original Message:
Sent: 06-09-2020 01:19 PM
From: Xinqin Yang
Subject: What is the dollar amount of coupon interest paid by the corporation every six months

Hello Everyone,

Hope everything fine with you!

I am preparing for the CMA P2 and got an question for Bonds

A corporation has just issued a 10-year bond with a coupon rate of 6% and semiannual coupon payments. The bond was issued to yield 8%, and the issue price was $864.10. What is the dollar amount of coupon interest paid by the corporation every six months?

Could anyone tell why it is 30?

below is the answer from Wiley CMAexcel
The dollar amount of coupon interest paid by the corporation every six months = $1,000 par value × 0.06 ÷ 2 = $30.

Thanks

------------------------------
Nancy Yang

------------------------------

The question asked about "dollar amount of coupon interest paid". It is about the actual interest amount paid.

Semi-annual = paying 2 times per year.

Since one year interest is 6% x $1,000 = $60, hence for every month six, payment is $30.

Bond par value is always $1,000.

On the separate note, are you taking the P2 paper the current window-period?

Thanks.

Regards.


------------------------------
Chin Hon Lee
Student
Puchong
Malaysia
------------------------------

Original Message:
Sent: 06-09-2020 01:19 PM
From: Xinqin Yang
Subject: What is the dollar amount of coupon interest paid by the corporation every six months

Hello Everyone,

Hope everything fine with you!

I am preparing for the CMA P2 and got an question for Bonds

A corporation has just issued a 10-year bond with a coupon rate of 6% and semiannual coupon payments. The bond was issued to yield 8%, and the issue price was $864.10. What is the dollar amount of coupon interest paid by the corporation every six months?

Could anyone tell why it is 30?

below is the answer from Wiley CMAexcel
The dollar amount of coupon interest paid by the corporation every six months = $1,000 par value × 0.06 ÷ 2 = $30.

Thanks

------------------------------
Nancy Yang

------------------------------