Question
In: Finance
A 20-year, semiannual coupon bond sells for $1,043.47. The bond has a par value of $1,000...
A 20-year, semiannual coupon bond sells for $1,043.47. The bond has a par value of $1,000 and a yield to maturity of 6.72 percent. What is the bond's coupon rate?
Solutions
Expert Solution
| Step-1:Calculation of coupon amount | |||||||||||
| Coupon amount | = | =pmt(rate,nper,-pv,fv) | |||||||||
| (semi annual) | = | $ 35.59 | |||||||||
| Where, | |||||||||||
| pmt | Semi annual coupon payment | ? | |||||||||
| rate | Semi annual yield to maturity | = | 6.72%/2 | = | 0.0336 | ||||||
| nper | semi annual number of period | = | 20*2 | = | 40 | ||||||
| pv | Current price | = | $ 1,043.47 | ||||||||
| fv | face value | = | $ 1,000 | ||||||||
| So, annual coupon payment | = | $ 35.59 | * | 2 | |||||||
| = | $ 71.18 | ||||||||||
| Step-2:Calculation of coupon rate | |||||||||||
| Coupon rate | = | Annual coupon payment / Face Value | |||||||||
| = | $ 71.18 | / | $ 1,000 | ||||||||
| = | 7.12% | ||||||||||
| Thus, | |||||||||||
| Coupon rate is 7.12% | |||||||||||
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