Bond Coupon vs. Interest Expense Explained
Summary
Hollow Point Trading shares an explainer on why a bond’s cash coupon payment may be less than the issuer’s interest expense. The example uses a $1,000 face-value bond with a 5% coupon, issued at a discount with a $900 beginning amortized cost and a 6% effective rate—important context for understanding bond accounting.
https://youtu.be/Q-vAgroNt3M
A bond coupon is not the issuer’s full interest expense #BondAcco...
A bond coupon payment can be smaller than the issuer's interest expense. Consider a hypothetical annual payment bond with one thousand dollars of face value and a five percent coupon. It was issued at a discount. Assume its beginning amortized cost is nine hundred dollars and its original annual effective interest rate is six percent. Cash inter...
