Say, a bond is purchased at a value of USD 900 and par value of USD 1000. The coupon rate is 5% and the maturity period is 4 years.
The interest earned, according to coupon rate of 5%, on the purchase value of USD 900 each year is USD 45. For 4 years, the total interest earned will be USD 180. Substituting all the known values in the given formula, we get: