Question

1. What is the coupon rate of an annual coupon bond that has a yield to maturity of 5.5%, a current price of $949.81, a par value of $1,000 and matures in 15 years?

   		6.33%
   		4.70%
   		3.07%
   		5.00%

Answer 1

Information provided:

Par value= future value= $1,000

Time= 5 years

Yield to maturity= 5.50%

Current price= present value= $949.81

The coupon rate is calculated by first computing the coupon payment.

Enter the below in a financial calculator to compute the coupon payment:

FV= 1,000

N= 15

I/Y= 5.50

PV= -949.81

Press the CPT key and PMT to compute the annual payment.

The value obtained is 49.99.

Therefore, the coupon payment is $49.99.

Coupon rate= Coupon payment/ Par value

                        = $49.99/ $1,000

                        = 0.05*100

                        = 5%.

Hence, the answer is option d.