Question

In: Finance

A ​$1,000 par value bond has a current price of ​$891.04 and a maturity value of $1,000 and matures in 7

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 _%?

Solutions

Expert Solution

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%

Junaid answered 2 years ago
Next > < Previous

Related Solutions

A $1,000 par value bond matures in 8 years. It has a 7% coupon rate, with...
A $1,000 par value bond matures in 8 years. It has a 7% coupon rate, with semi-annual interest payments. The yield (the rate at which investors are using to calculate the price of the bond) is 8%. What is the fair market value of the bond?
A 7% coupon bond has a par value of $1,000 and a yield-to-maturity of 5%. You...
A 7% coupon bond has a par value of $1,000 and a yield-to-maturity of 5%. You purchase the bond when it has exactly 7 years remaining until maturity. You hold the bond for 6 months, collect the coupon payment, and then sell the bond immediately. If the bond's yield-to-maturity is 9% when you sell it, what is your percentage return over this 6-month holding period? Enter your answer as a decimal and show 4 decimal places. For example, if your...
Calculate the value of a bond that matures in 15 years and has a $1,000 par...
Calculate the value of a bond that matures in 15 years and has a $1,000 par value. The annual coupon interest rate is 14 percent and the​ market's required yield to maturity on a​ comparable-risk bond is 11 percent.
Calculate the value of a bond that matures in 16 years and has a $1,000 par...
Calculate the value of a bond that matures in 16 years and has a $1,000 par value. The annual coupon interest rate is 12 percent and the​ market's required yield to maturity on a​ comparable-risk bond is 16 percent.
Calculate the value of a bond that matures in 18 years and has a $1,000 par...
Calculate the value of a bond that matures in 18 years and has a $1,000 par value. The annual coupon interest rate is 13 percent and the​ market's required yield to maturity on a comparable-risk bond is 15 percent.
Calculate the value of a bond that matures in 13 years and has a $1,000 par...
Calculate the value of a bond that matures in 13 years and has a $1,000 par value. The annual coupon interest rate is 9 percent and the​ market's required yield to maturity on a​ comparable-risk bond is 11 percent. The value of the bond is
Yield to maturity and future price A bond has a $1,000 par value, 12 years to...
Yield to maturity and future price A bond has a $1,000 par value, 12 years to maturity, and a 8% annual coupon and sells for $980. What is its yield to maturity (YTM)? Round your answer to two decimal places.    % Assume that the yield to maturity remains constant for the next 5 years. What will the price be 5 years from today? Round your answer to the nearest cent. $   
YIELD TO MATURITY AND FUTURE PRICE A bond has a $1,000 par value, 10 years to...
YIELD TO MATURITY AND FUTURE PRICE A bond has a $1,000 par value, 10 years to maturity, and a 7% annual coupon and sells for $985. A. What is its yield to maturity (YTM)? B. Assume that the yield to maturity remains constant for the next three years. What will the price be 3 years from today?
The current price of a 10-year, $1,000 par value bond is $1,000. Interest on this bond...
The current price of a 10-year, $1,000 par value bond is $1,000. Interest on this bond is paid every six months, and the simple annual yield is 14 percent. Given these facts, what is the annual coupon rate on this bond? a. 10% b. 12% c. 14% d. 17% e. 21%
A bond has a $1,000 par value, 7 years to maturity, and a 12% semi-annual coupon...
A bond has a $1,000 par value, 7 years to maturity, and a 12% semi-annual coupon and sells for $947. What is its yield to maturity (YTM)?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT