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3. (8 marks) Consider a 6-year, $1,000 par bond that pays semi-annual coupon. Its yield to...

3. Consider a 6-year, $1,000 par bond that pays semi-annual coupon. Its yield to maturity is 7% and is selling for $1,095.452? Find the coupon rate of this bond.

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Answer #1

Using the formula given below-

where,

we have,

F=$1000

P=$1095.452

C=?

N=6*2=12

YTM=7%=0.07

Semi-annual YTM=0.035

Semi-Annual YTM= [(1000-1095.452)/12+C]/[(1000+1095.452)/2]

0.035 =(-7.95+C)/1047.876

0.035*1047.876 =-7.95+C

36.68 =-7.95+C

36.68+7.95 =C(semi annual coupon interest)

45(approx)*2 =90 =Coupon interest annually

Coupon rate = (90/1000)*100

=9%  

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