Question

A coupon bond is a bond that

A. pays interest on a regular basis (typically every six months).

B. None of the options are correct.

C. does not pay interest on a regular basis but pays a lump sum at maturity.

D. can always be converted into a specific number of shares of common stock in the issuing company.

E. always sells at par value.

Answer 1

Coupon bond entitles the holder of the bond to receive interest on regular basis. such coupon amount is calculated by Face value * coupon rate * number of months / 12

Generally interest payment will be made every six months.

Coupon bond doesn't mean that it can be converted into a specific number of shares of common stock in the issuing company, Bond which gives the option to convert into common stock is called as Convertible bond. Convertible bonds too provide interest on regular basis. But not every coupon bond is convertible bond.

Bonds may sell at premium , discount or at par value depending on the market demand. If the market provides higher interest rate than the bond then the bonds sells at a discount. if market interest rate equals the coupon rate then bond sells at par.

So, Option 'A' is correct

Pays interest on a regular basis (typically every six months.)