Multiple Choice
To compensate the bondholders for getting the bond called before maturity, the issuer typically pays which of the following?
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11. Long Term Liabilities
Introduction to Bonds and Bond Characteristics
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Which of the following best describes a typical feature of most corporate bonds regarding coupon payments?
A
They pay interest to bondholders monthly.
B
They pay interest to bondholders only at maturity.
C
They do not pay any interest to bondholders.
D
They pay interest to bondholders semiannually.
Verified step by step guidance1
Understand the concept of corporate bonds: Corporate bonds are debt securities issued by companies to raise capital. Bondholders receive periodic interest payments, known as coupon payments, and the principal amount is repaid at maturity.
Learn about coupon payments: Coupon payments are the periodic interest payments made to bondholders. These payments are typically fixed and based on the bond's stated interest rate (coupon rate).
Recognize the typical frequency of coupon payments: Most corporate bonds pay interest semiannually, meaning bondholders receive two payments per year. This is a standard feature of corporate bonds.
Eliminate incorrect options: Monthly payments are uncommon for corporate bonds, interest payments only at maturity are characteristic of zero-coupon bonds, and bonds that do not pay interest are also zero-coupon bonds.
Confirm the correct answer: Based on the typical feature of corporate bonds, the correct description is that they pay interest to bondholders semiannually.
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