For a fixed-rate bond, coupon cash is normally face amount multiplied by the stated periodic rate. A 6 percent annual coupon paid semiannually uses 3 percent per six-month period—not 6 percent twice.
The stated rate controls contractual cash, not effective interest expense when the instrument is issued away from face or includes amortized issuance costs.
Use the rate for coupon cash
ASC 835-30-35-3 distinguishes nominal interest on the outstanding debt from interest cost under the interest method. The stated rate determines nominal coupon cash under the contract; the effective rate determines expense on carrying amount.
A bond with $800,000 face, a 5 percent annual stated rate, and quarterly payments pays $10,000 each quarter. Do not use the market yield to calculate that payment. If the contract uses a floating rate, unusual day count, or changing principal base, map those terms before applying the formula. This page covers a supplied fixed-rate pattern.
Put the concept to work
Apply this concept
- Convert a supplied annual stated rate to the matching payment period and compute contractual cash interest from the correct principal base.
Learning resources
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Build on these ideas
- Periodic interest rate — Apply
To apply this concept: Required. Annual and periodic rates must match the cash-flow interval.