1. What is Annual Coupon Payment?

The annual coupon payment is the periodic interest payment made to bondholders each year. It's calculated as the product of the bond's par value and its annual coupon rate.

2. How Does the Calculator Work?

The calculator uses the annual coupon formula:

Where:

• \( \text{Par} \) — Face value of the bond (USD)
• \( \text{Annual Rate} \) — Annual coupon rate (decimal)

Explanation: The formula simply multiplies the bond's face value by its annual interest rate to determine the yearly interest payment.

3. Importance of Coupon Calculation

Details: Calculating the annual coupon payment helps investors understand their expected income from bond investments and compare different bond offerings.

4. Using the Calculator

Tips: Enter the bond's par value in USD and the annual rate as a decimal (e.g., 5% = 0.05). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between coupon rate and yield?
A: Coupon rate is fixed and based on par value, while yield varies with market price and considers total return.

Q2: How often are coupon payments made?
A: While this calculator shows annual payments, many bonds pay semi-annually (divide annual coupon by 2).

Q3: What happens if a bond is bought at a discount or premium?
A: The coupon payment remains the same (based on par value), but the yield will differ from the coupon rate.

Q4: Are coupon payments taxable?
A: Generally yes, though municipal bonds may be tax-exempt. Consult a tax professional for specific advice.

Q5: What's a zero-coupon bond?
A: A bond that pays no periodic coupons; the entire return comes from the difference between purchase price and par value at maturity.