Question

Riverhawk Corporation has a bond outstanding with a market price of $1,200.00. The bond has 10 years to maturity, pays interest semiannually, and has a yield to maturity of 9%. What is the bond’s coupon rate?

	A.	12.84%
	B.	12.08%
	C.	13.61%
	D.	11.31%
	E.	9.77%
	F.	10.54%

Answer 1

Information provided:

Par value = future value = $1,000

Present value (PV)= $1,200

Time (N)= 10 years*2 = 20 semi-annual periods

Yield to maturity (I/Y)= 9%/2 = 4.50% per semi-annual period

The question is solved by first computing the amount of coupon payment.

Enter the below in a financial calculator to compute the coupon payment:

FV= 1,000

PV= -1,200

N= 20

I/Y= 4.50

Press the CPT key and PMT to compute the amount of coupon payment.

The value obtained is 60.3752

Therefore, the amount of annual coupon payment is $60.3752*2 = $120.7505

Coupon rate = Coupon payment / Par value

= $120.7505 / $1,000

= 0.1208*100

= 12.08%   

                                                                                                                                    

In case of any query, kindly comment on the solution.

A.At 7%: