Question
In: Finance
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%
Solutions
Expert Solution
Par value= future value= $1,000
Present value= $1,000
Yield to maturity= 14%/2= 7%
Time= 10 years*2= 20 semi-annual periods
The question is solved by first computing the amount of coupon payment.
The below has to be entered in a financial calculator to compute the amount of coupon payment:
FV= 1,000
PV= -1,000
I/Y= 7
N= 20
Press the CPT key and PMT to compute the amount of coupon payment.
The value obtained is 70.
Therefore, the amount of annual coupon payment is $70*2= $140.
Coupon rate is computed using the below formula:
Coupon rate= Annual coupon rate/ Par value
= $140/ $1,000
= 0.14*100= 14%.
Therefore, the annual coupon rate is 14%.
Hence, the answer is option c.
In case of any query, kindly comment on the solution.
jeff jeffy answered 1 year agoRelated Solutions
You are considering a 10-year, $1,000 par value bond. Its coupon rate is 10%, and interest...
You are considering a 10-year, $1,000 par value bond. Its coupon
rate is 10%, and interest is paid semiannually. If you require an
"effective" annual interest rate (not a nominal rate) of 11.2510%,
how much should you be willing to pay for the bond? Do not round
intermediate calculations. Round your answer to the nearest
cent.
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 _%?
A 15-year, $1,000 par value, 10% semiannual coupon bond has a price of $1,190 and it...
A 15-year, $1,000 par value, 10% semiannual coupon bond has a
price of $1,190 and it is callable in 5 years at a call price of
$1,050. What is the bond’s nominal yield to call (YTC)?
a.
6.37%
b.
6.73%
c.
7.60%
d.
7.83%
e.
3.18%
A 15-year, $1,000 par value, 10% semiannual coupon bond has a price of $1,190 and it...
A 15-year, $1,000 par value, 10% semiannual coupon bond has a
price of $1,190 and it is callable in 5 years at a call price of
$1,050. What is the bond’s nominal yield to call (YTC)?
a.
6.37%
b.
6.73%
c.
7.60%
d.
7.83%
e.
3.18%
Mary buys a 10-year, 1,000 par value bond with 8% semiannual coupons. The price of the...
Mary buys a 10-year, 1,000 par value bond with 8% semiannual
coupons. The price
of the bond to earn a yield of 6% convertible semiannually is
1,204.15. The redemption value is more
than the par value. Calculate the price Mary would have to pay for
the same bond to yield 10%
convertible semiannually. Show all work.
The market price is $850 for a 10-year bond ($1,000 par value) that pays 9 percent...
The market price is $850 for a 10-year bond ($1,000 par
value) that pays 9 percent annual interest but makes interest
payments on a semiannual basis (4.5 percent semiannually). What is
the bond's yield to maturity?
The bond's yield to maturity is ____ (Round to two
decimal places.)
2. (Bond
valuation)Fingen's 16-year, $1,000 par value bonds pay
14 percent interest annually. The market price of the bonds is $870
and the market's required yield to maturity on a comparable-risk
bond...
There is a bond that pays $100 per year interest, with a $1,000 par value. It...
There is a bond that pays $100 per year interest, with a $1,000
par value. It matures in 15 years. The market required yield to
maturity on a comparable bond is 12%. What is the value of the
bond? How does the value change if the yield to maturity on a
comparable bond increase to 15%? What if it decreases to 8%.
Explain the above questions (part b) with the concepts of interest
rate risk, premium bonds and discount bonds....
There is a bond that pays $100 per year interest, with a $1,000 par value. It...
There is a bond that pays $100 per year interest, with a $1,000
par value. It matures in 15 years. The market required yield to
maturity on a comparable bond is 12%.
What is the value of the bond?
How does the value change if the yield to maturity on a
comparable bond increase to 15%? What if it decreases to 8%.
Explain the above questions (part b) with the concepts of
interest rate risk, premium bonds and discount bonds....
What is the current price of a $1,000 par value bond maturing in 20 years with...
What is the current price of a $1,000 par value bond maturing in
20 years with a coupon rate of 8%, paid annually, that has a
required return of 12%? Please include 2 decimal places
You are considering a 10-year, $1,000 par value bond. Its coupon rate is 8%, and interest...
You are considering a 10-year, $1,000 par value bond. Its coupon
rate is 8%, and interest is paid semiannually. The data has been
collected in the Microsoft Excel Online file below.
If you require an "effective" annual interest rate (not a
nominal rate) of 10.16%, how much should you be willing to pay for
the bond? Do not round intermediate steps. Round your answer to the
nearest cent.
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- 1. Two 2-D arrays A [ ] [ ] and B [ ] [ ] are...
- Research and Discuss Distributed Resource Scheduler (DRS) and High Availability (HA) Clusters. list two references
- *can someone please explain/show me the process of this problem? Thanks in advance! Scott Company uses...
- The output of the following code is "11 0" But I am not sure why, can...
- please discrete the difference between capital planning and capital budgeting.
- Prove whether the following are regular (include the file) or not regular (attach a proof). The...
- Search the Internet and find two latest types of malware on smartphones. Summarize the way these...
ADVERTISEMENT