A 5-year $1,000 facevalue coupon bond is currently sold at $109. Assume the yield to...

A 5-year $1,000 face value coupon bond is currently sold at $109. Assume the yield to maturity of this coupon bond is 12.37% and the coupon bond pays the interest payment annually.

What is the annual coupon rate of the bond?

Solutions

Expert Solution

Bond cant be selling at 109. This is an error. The value is taken 1009

Value of Bond =

Where r is the discounting rate of a compounding period i.e. 12.37%

And n is the no of Compounding periods 5 years

Coupon ?

1009 =

1009 = Coupon * 3.57197769975 + 558.14635854

Coupon = 1009 - 558.14635854 / 3.57197769975

Coupon = 126.2196

Coupon % = 126.2196 / 1000 = 12.62%

jeff jeffy answered 2 years ago

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