What is the cash flow of a 10-year bond that pays coupon interest semiannually, has a coupon rate of 7%, and has a par value of $100,000?

What will be an ideal response?

The principal or par value of a bond is the amount that the issuer agrees to repay the bondholder at the maturity date. The coupon rate multiplied by the principal of the bond provides the dollar amount of the coupon (or annual amount of the interest payment). A 10-year bond with a 7% annual coupon rate and a principal of $100,000 will pay semiannual interest of(0.07/2)($100,000) = $3,500for 10(2) = 20 periods.Thus, the cash flow is an annuity of $3,500 made is 20 payments at the same two points in time for each of the ten years. In addition to this cash flow, the issuer of the bond is obligated to pay back the principal of $100,000 at the time when the last $3,500 is paid.