A 14-year, semiannual coupon bond sells for $974.17. The bond has a par value of $1,000...

A 14-year, semiannual coupon bond sells for $974.17. The bond has a par value of $1,000 and a yield to maturity of 6.54 percent. What is the bond's coupon rate?

Solutions

Expert Solution

Information provided:

Par value= Future value= $1,000

Time= 14 years*2= 28 semi-annual periods

Current price= present value= $974.17

Yield to maturity= 6.54%/2= 3.27% per semi-annual period

The coupon rate is computed by first calculating the coupon payment.

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

FV= 1,000

N= 28

PV= -974.17

I/Y= 3.27

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

The value obtained is 31.2774.

The annual coupon payment is $31.2774*2= $62.5552.

Coupon rate= annual coupon payment/ Face value

= $62.5552/ 1,000

= 0.0626*100

= 6.26%.

In case of any query, kindly comment on the solution.

jeff jeffy answered 6 months ago

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