Question

Interest rates have the greatest effect on bond prices? A coupon rate of 10% ($1000 face value bond) means that the bond will pay $60 interest every 6 months if the interest is paid semi-annually. True or False

A coupon rate of 10% ($1000 face value bond) means that the bond will pay $60 interest every 6 months if the interest is paid semi-annually. True or False

Answer 1

First statement is True.
Interest rate has the greatest effect on bond prices.
When interest rate fall, bond price increase or when interest rate rise, bond price will decrease.
Interest rate and bond price have inverse relationship.

Second Statement is False.
if coupon rate is 10% bond will pay $50 interest every six month if the interest is paid semiannually.
Coupon amount = 1000*10% = 100
Interest is paid semi annually = 100/2 = 50 every six month.

I hope this clear your doubt.

Feel free to comment if you still have any query or need something else. I'll help asap.

Do give a thumbs up if you find this helpful