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Every question in the free CFA Level I bank carries a full worked solution. Here is one from the pool:
Question 1
Medium
A bond's coupon rate is the:
Solution
B is correct.
The coupon rate is the stated annual interest rate expressed as a percentage of the bond's par (face) value, so the annual coupon equals the coupon rate times par, split across the payment dates. For a fixed-rate bond the rate is set at issuance and the periodic coupon payments stay the same over the bond's life. For a floating-rate note, the coupon rate is a market reference rate plus a credit spread and resets periodically as the market reference rate changes, so the payments change with it. In both cases the rate is applied to par, not to the current market price (annual coupon divided by market price is the current yield), and it does not capture price changes or reinvestment the way the yield to maturity does.
The coupon rate is the stated annual interest rate expressed as a percentage of the bond's par (face) value, so the annual coupon equals the coupon rate times par, split across the payment dates. For a fixed-rate bond the rate is set at issuance and the periodic coupon payments stay the same over the bond's life. For a floating-rate note, the coupon rate is a market reference rate plus a credit spread and resets periodically as the market reference rate changes, so the payments change with it. In both cases the rate is applied to par, not to the current market price (annual coupon divided by market price is the current yield), and it does not capture price changes or reinvestment the way the yield to maturity does.
