In: Finance
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?
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%