1. What is Coupon Payment?

A coupon payment is the periodic interest payment made to bondholders during the life of the bond. It represents the interest earned on the bond's face value based on its coupon rate.

2. How Does the Calculator Work?

The calculator uses the coupon payment formula:

Where:

• \( Face \) — Face value of the bond (USD)
• \( Rate \) — Annual coupon rate (decimal)
• \( n \) — Number of payments per year (2 for semi-annual, 4 for quarterly, 1 for annual)

Explanation: The formula calculates the periodic interest payment by dividing the annual coupon payment by the number of payment periods per year.

3. Importance of Coupon Payments

Details: Coupon payments are crucial for bond investors as they represent the regular income stream from the bond investment. The payment amount and frequency affect the bond's yield and price.

4. Using the Calculator

Tips: Enter the bond's face value in USD, coupon rate as a decimal (e.g., 0.05 for 5%), and select the payment frequency. All values must be valid (face > 0, rate between 0-1).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between coupon rate and yield?
A: Coupon rate is fixed and determines the payment amount, while yield varies with the bond's price and represents the actual return.

Q2: Why are most bonds semi-annual?
A: Semi-annual payments provide more frequent income while keeping administrative costs reasonable.

Q3: How does payment frequency affect yield?
A: More frequent payments lead to slightly higher effective yield due to compounding.

Q4: What about zero-coupon bonds?
A: Zero-coupon bonds don't make periodic payments; they're issued at a discount and pay face value at maturity.

Q5: Are coupon payments taxable?
A: Generally yes, though some government and municipal bonds may be tax-exempt.