Question

This last bond was just downgraded to BBB-, so that its expected yield is now 9.578%....

This last bond was just downgraded to BBB-, so that its expected yield is now 9.578%. It was issued with par value of $1,000 on December 15, 2008 and matures 25 years later. If the bond now trades at a current price of $659.50. What is the its coupon rate? (Do not use the % sign with your answer).

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Answer #1
Current bond Price $659.50
Current Bond Price=Sum of Present Values of future cash flows
Expected yield=9.578% 0.09578
Years to maturity 25
Present Value of $1000 to be received at maturity= 101.6052 (1000/(1.09578^25)
Present value of coupon payment $557.89 (659.50-101.6052)
Annual Coupon payment on the bond for 25 years $59.48 (Using excel PMT function with Rate=9.578%, Nper=25,PV=557.89)
Coupon rate 5.948

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