Question

What is the coupon rate of a 10-year, $1000 bond with coupons paid semiannually and a...

What is the coupon rate of a 10-year, $1000 bond with coupons paid semiannually and a price of $700, if it has a yield to maturity of 10%? Note: Express your answers in strictly numerical terms. For example, if the answer is 5%, write enter 0.05 as an answer.

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Answer #1

Answer:

Price of the bond=present value of future payments discounted at yield to maturity

Future payments are Annual coupon payments and maturity amount

Coupon payments is =Face value *Coupon rate

Face value is $1,000

so coupon payment is=?

Yield to maturity is=10%/2=5%

No of semi annuals =10*2=20

Price of the bond is=$700

Using trail and error method,Coupen payment is as follows:-

Computation of present value of Future Payments:-

Semi annual coupen rate is 4.959%

Annual coupen rate is =4.959*2

Annual coupen rate is=9.918%

Annual coupen rate is=0.09918

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