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O’Brien Ltd.’s outstanding bonds have a $1,000 par value, and they mature in 15 years. Their...

O’Brien Ltd.’s outstanding bonds have a $1,000 par value, and they mature in 15 years. Their nominal yield to maturity is 7.00%, they pay interest semiannually, and they sell at a price of $960. What is the bond’s nominal (annual) coupon interest rate?

A.

6.57%
B.

6.10%
C.

7.00%
D.

3.28%
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Homework Answers

Answer #1

M = $1000, n = 15 *2 = 30 semi-annual periods, P = $960, i = 7%/2 = 3.5% (semi-annual),

960 = C * 18.3920 + 356.2784

603.7216 = C * 18.3920

C = $32.83 --> Semi-annual

Annual Coupon = 2 * $32.83 = $65.7

Coupon Rate = Annual Coupon/Par Value = $65.7/$1000 = 6.57%

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