Question

The bonds of CEPS Group sells for OMR 896.67. The yield to maturity is 11 percent and the maturity date is 10 years from today. What is the annual coupon rate of this bond if the face value is $1,000? show the answer in detail.

Answer 1

C = Annual Coupon Payment

r = Yeild to Maturity = 11%

n = 10 years

Face Value = 1,000

Current Price of Bond = 896.67

Current Price of Bond = [C*[1 - (1+r)^-n] / r] + [Face Value / (1+r)^n]

896.67 = [C * [1 - (1+11%)^-10] / 11%] + [1,000 / (1+11%)^10]

896.67 = [C * 0.647815521 / 0.11] + [1,000 / 2.83942099]

896.67 = [C * 5.88923201] + 352.184478\

[C * 5.88923201] = 544.485522

C = 92.4544187

Coupon rate = Coupon payment / Face Value

= 92.4544187 / 1,000

= 0.0924544187

= 9.24544187%

Therefore, Coupon rate is 9.25%