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What is the annual coupon rate for a par value bond that sells today for $731.90,...

What is the annual coupon rate for a par value bond that sells today for $731.90, paid semiannually, which matures in 16 years, and has a yield to maturity of 8%?

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Answer #1

Face/Par Value of bond = $1000

No of semi-annual coupon paymnet(n) = No of years to maturity*2 = 16 years*2

= 32

Semi-annual YTM = 8%/2 = 4%

Current price = $731.90

Calculating the Market price of Bond:-

731.90 - 285.058 = CouponPayment*17.8735514985

Coupon Payment = $25

Semi-annual Coupon Payment is $25

Annual Coupon rate = (Semi-annual Coupon Payment*2)/Face Value = (25*2)/1000

Annual Coupon rate = 5%

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