Question

Siamtop Inc. offers a 15-year coupon bond with semiannual payments. The yield to maturity is 7.34 percent and the bonds sell at 96 percent of par. What is the coupon rate?

Show work.

Answer 1

Value of a bond = PV of cashflows arising from it

Lets assume FV of Bond is $ 1000.00 and coupon rate is x% for 6 months.

Given yield per anum = 7.34% pa or 3.67% per six months

Value of Bond = $ 1000 * 96% = $ 960.00

However it is given that selling price is 96% of PAR value. As we considered $1000 as par value, selling price must be $ 960

Thus $ 960 = 180.09x + $ 339.16

180.09x = 620.84

x = 3.45

i.e 3.45% coupon rate for 6 months or 6.90% coupon rate per anum