Identifier: C2T1L2 | Revision: 2026-10-26

Decision and objectives

A term sheet says 12% annual coupon, semiannual payment, three-year maturity. That sentence is incomplete until the principal base, coupon convention and redemption terms are known. Your task is to create a cash schedule that another reader can value. Use the previous lesson's issuer classification, then read the issue's final terms rather than a distributor's summary.

Objectives: Reconstruct a coupon schedule; Calculate amortizing principal payments; Identify the effect of optional redemption.

Prerequisites: C2T1L1.

Mechanics

A coupon is contractual periodic income. For a regular fixed coupon quoted as a nominal annual rate, each period's amount is outstanding principal × annual coupon rate / payments per year. Semiannual means two payments each year; it does not mean two annual coupons. A bullet repayment returns all principal at the end. An amortizing issue repays principal in installments, so later coupons may use a smaller balance.

Maturity is the final contractual payment date, subject to default or contractual changes. An issuer call grants the issuer a right to redeem on specified terms. A holder put grants the investor a redemption right. Do not replace an optional date with a promised date. Read notice deadlines, redemption price, accrued coupon treatment, and any approvals or conditions.

Price and return drivers

Coupon cash depends on nominal outstanding, while the yield depends on the price paid and payment timing. If principal amortizes, total coupon receipts can be smaller than face value × annual coupon × original years. The missing principal is not a loss: it has already been returned. Holding those repayments as idle cash or reinvesting them changes the investor's terminal wealth.

Worked case

Hypothetical TRY 200,000 face, 12% nominal annual coupon paid semiannually, three years, regular equal half-years, bullet redemption at par, no fees, taxes or default. Each coupon = 200,000 × 0.12 / 2 = TRY 12,000. At months 6, 12, 18, 24 and 30 receive TRY 12,000; at month 36 receive TRY 212,000. Total coupons = 6 × 12,000 = TRY 72,000. Total promised cash = TRY 272,000, spread across dates. That total is not today's value.

Now compare a separate hypothetical two-year annual-pay issue: face TRY 200,000, 12% coupon, TRY 100,000 principal repaid at each year-end. Year one pays 24,000 + 100,000 = TRY 124,000; year two pays 12,000 + 100,000 = TRY 112,000. Total coupons are TRY 36,000. Writing both balance and payment columns prevents paying a coupon on principal already redeemed.

Adverse case

Suppose the bullet issue allows a par call at month 12 immediately after the coupon. If called, the investor receives two coupons and TRY 200,000 principal: total TRY 224,000, not TRY 272,000. There is no entitlement to later coupons after valid redemption. If no call occurs, the original schedule remains. Before the decision, price must reflect uncertainty over the issuer's behavior; a call-date projection is not an executed exit quote.

Practical use

Locate issue currency, International Securities Identification Number (ISIN), denomination, interest start, first and last coupon dates, maturity and amortization table. Irregular first or last periods need the stated day-count method instead of automatic division by frequency. Confirm whether redemption is cash, shares or another asset. Ask how the intermediary will credit payments and whether custody or payment charges apply. Tax is excluded here to isolate contractual cash flows; C2T7 adds investor-specific net cash.

Decision boundaries

A high coupon cannot compensate for a payment schedule that misses the liability date. A call date is not a dependable investor cash date unless the investor has an enforceable put or the call has actually been exercised. Do not evaluate an amortizing issue as though its full principal earns the coupon throughout. Retain enough liquid cash if income timing depends on optional issuer action.

Practice and references

Exercise: hypothetical TRY 90,000 face, two-year maturity, 10% annual coupon, equal annual principal repayments of TRY 45,000. Answer: year one coupon 9,000 plus principal 45,000 = TRY 54,000; year two coupon 4,500 plus principal 45,000 = TRY 49,500. Total promised income is TRY 13,500 and total receipts TRY 103,500, before costs and tax.

Takeaway: reconstruct amounts on dates using the principal actually outstanding.

Reference guide: domestic-government-bond, domestic-corporate-bond, coupon-cash, Coupon, Bullet redemption, Amortization.

Next: C2T1L3. Topic test: C2T1.

Primary sources (checked 2026-10-26; changing terms require a publication recheck): Borsa Istanbul Debt Securities Market products — Public Debt Instruments; Private Sector Debt Instruments; Lease Certificates; Eurobonds.

Shared reference guide