Question

A ​$1,000 par value bond has a current price of ​$891.04 and a maturity value of $1,000 and matures in 7 years. If interest is paid semiannually and the bond is priced to yield 8​%, what is the​ bond's annual coupon​ rate?

The​ bond's annual coupon rate is _%?

Answer 1

Rate = 8% / 2 = 4%

Number of periods = 7 * 2 = 14

Price of Bond = Coupon * [ 1 - 1 / ( 1 + r)n] / r + FV / ( 1 + r)n

891.04 = Coupon * [ 1 - 1 / ( 1 + 0.04)¹⁴] / 0.04 + 1000 / ( 1 + 0.04)¹⁴

891.04 = Coupon * 10.563123 + 577.475083

Coupon = 29.685

Annual coupon = 29.685 * 2 = 59.37

Coupon rate = ( 59.37/ 1,000) * 100

Coupon rate = 5.937%

Coupon rate = 5.937%