Definition of Bond Interest Coverage Ratio

Bond Interest Coverage Ratio is a measure of the issuer’s liquidity. It demonstrates how many times the issuer’s earnings will cover their bond interest expense.

Applying "Bond Interest Coverage Ratio" to Securities Exams:

Most bonds that are issued pay interest to the bondholder on a semi-annual basis, and the amount of interest is based on a $1000 par value. The bond coverage ratio looks at how many times the issuer’s income would cover the interest payments due on the bonds. The higher the ratio the more liquid the issuer is.

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