Question

To calculate the number of years until maturity, assume that it is currently May 2013.

Rate	Maturity Mo/Yr	Bid	Asked	Chg	Ask Yield
??	May 21	103.5540	103.6422	+.3093	2.449
5.524	May 26	104.5030	104.6487	+.4365	??
6.193	May 36	??	??	+.5483	4.151

* yes i know it says May 36. that's how it is worded in the problem.

In the above table, find the Treasury bond that matures in May 2021. What is the coupon rate for this bond? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Coupon rate

%

Answer 1

Annual coupon rate for the Bond

The Coupon rate of the Bond is calculated using financial calculator as follows (Normally, the rate is calculated either using EXCEL Functions or by using Financial Calculator)

Variables	Financial Calculator Keys	Figure
Par Value/Face Value of the Bond [$1,000]	FV	1,000
Coupon Amount	PMT	?
Market Interest Rate or Yield to maturity on the Bond [2.449% x ½]	1/Y	1.2245
Time to Maturity [(May 2021 – May 2013) x 2]	N	16
Bond Price/Current Market Price of the Bond [-$1,000 x 103.6422%]	PV	-1,036.42

We need to set the above figures into the financial calculator to find out the semi-annual coupon amount. After entering the above keys in the financial calculator, we get the semi-annual coupon amount (PMT) = $14.77.

Here, we get semi-annual Coupon amount = $14.77.

Annual Coupon Amount = $29.54 [$14.77 x 2]

The coupon rate is calculated by dividing the annual coupon amount with the par value of the Bond

So, Annual Coupon Rate = [Annual Coupon Amount / Par Value] x 100

= [$29.54 / $1,.000] x 100

= 2.95%

Hence, the coupon rate of the bond will be 2.95%