Fight Finance

(a) Coupon rate is equal to the benchmark rate plus a premium.

(b) Premium is also commonly called a spread or margin.

(c) Premium rate is fixed. The number is written in the bond contract and does not change.

(d) Benchmark rate is fixed. The number is written in the bond contract and does not change.

(e) Paying quarterly US dollar coupons often use the 90-day USD LIBOR rate as the benchmark.

(a) Next quarterly dollar coupon is equal to the bond's face value multiplied by the coupon rate, divided by 4.

(b) First coupon is based on the benchmark rate at the time the bond was first issued. Therefore the first quarterly coupon is known for certain when it is issued.

(c) Coupons after the first are based on the benchmark rate at the time of that next coupon's ex-coupon date. Therefore the next quarterly coupon's dollar payment is unknown until its ex-coupon date, which is just a few days before the coupon payment date.

(d) Macaulay duration is equal to the time until the next ex-coupon date.

(e) Price is generally equal to its face value on its ex-coupon dates if there was no change in the bond's risk premium since it was issued.