SIE Exam Question 745: Answer and Explanation

Question: 745

Which of the following is correct regarding a bond's coupon rate?

• A. It is the stated annual interest rate that will be paid each period for the term of a bond.
• B. It is stated as a percentage of the current market price of a bond.
• C. A 5% coupon bond will pay $50 each semiannual period for a $1,000 bond.
• D. A bond's coupon rate is also its yield to maturity (YTM).

Correct Answer: A

Explanation:

A bond's coupon rate is the stated annual interest rate that will be paid each period for the term of a bond. It is stated as a percentage of the face value of the bond.