SIE Ready💵 Debt Securities · Lesson 1 of 7 · 5 min
Par, Coupon, Maturity: Reading a Bond
💵 A stock makes you an owner. A bond makes you a lender, and every number on it tells you what the borrower owes you and when.
💡 Key idea
1 point = 1% of par = $10 on a $1,000 bond. The buyer of a bond between coupon dates pays the seller the interest earned so far.
🧠 Why it matters
PAR (face value) is what the issuer repays at maturity, normally $1,000 per bond. The COUPON (nominal rate) is a fixed percentage of par paid as interest, usually every six months: a 6% bond pays $60 a year as two $30 payments. Bonds are quoted in POINTS, each 1% of par, so 1 point = $10 and a price of 97 1/2 means $975. Between coupon dates interest builds up; the buyer pays the seller this ACCRUED INTEREST on top of the price, then collects the full next coupon. MATURITY STRUCTURE: a TERM issue matures all on one date; a SERIAL issue matures in pieces over several years; a BALLOON issue is serial with a large final piece.
📈 In the real world
📄 Ms. Okafor sees a 5% corporate bond quoted at 102. Her rep, Dev, explains: that's $1,020 per bond, plus about three months of accrued interest owed to the seller, because the last coupon was paid in March. In September she receives the full $25 semiannual coupon, which pays her back the accrued interest she advanced.
📌 Takeaways
- Par is $1,000; the coupon is a fixed % of par, usually paid semiannually
- Points: 1 point = $10, so 98 = $980 and 101 1/4 = $1,012.50
- Term = one maturity date; serial = many; balloon = serial with a big final piece
📖 Terms in this lesson
Par value: The face amount of a bond, typically $1,000, that the issuer repays at maturity.
Coupon (nominal yield): A bond's stated annual interest rate, applied to par value.
Accrued interest: Interest earned since the last coupon date that the buyer pays the seller when the trade settles.
Serial maturity: A bond issue structured so portions mature in different years instead of all at once.
✅ Test yourself
A corporate bond is quoted at 96 3/4. What is the dollar price of one $1,000 bond?
- $96.75
- $967.50
- $9,675.00
- $1,032.50
Answer: B · $967.50
Each point is 1% of $1,000, or $10. 96.75 × $10 = $967.50. $96.75 treats the quote as dollars, and $1,032.50 adds the discount instead of subtracting it.
A bond issue that has portions maturing every year for 15 years is best described as a:
- Term maturity
- Balloon maturity
- Perpetual issue
- Serial maturity
Answer: D · Serial maturity
Serial issues retire pieces in successive years. A term issue matures all at once, and a balloon issue is serial but with a large final payment.
When a bond is bought between coupon dates, the accrued interest is:
- Waived on regular-way trades
- Paid by the seller to the buyer
- Kept by the issuer until maturity
- Paid by the buyer to the seller
Answer: D · Paid by the buyer to the seller
The seller earned the interest while holding the bond, so the buyer reimburses it and then receives the full next coupon from the issuer.
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