Question

A bond has a par value of $1,000, a current yield of 8.03 percent, and semiannual coupon payments. The bond is quoted at 102.73. What is the coupon rate of the bond?

• 16.06%

• 8.25%

• 8.03%

• 16.50%

• 9.28%

Answer 1

Answer: 8.25%

A bond quote is the last price at which a bond traded ( current market price) expressed as a percentage of par value. Here the bond quoted at 102.73 means the current market price of the bond is 102.73% of par value.

That is current market price = $ 1,000 × 102.73%

= $ 1,027.3

Coupon rate is the annual interest payment on a bond which is certain percentage of the par value of bond.

Current yield = Annual coupon payment / Current Market price of bond

8.03% = Annual coupon payment / $ 1,027.3

0.0803 = $ 1000 × coupon rate / $ 1,027.3

0.0803 × 1027.3 = 1,000 × coupon rate

82.49 = 1,000 × coupon rate

Coupon Rate = 82.49 / 1,000

= 0.08249

Coupon rate (in percentage) = 0.08249 × 100

= 8.249%

= 8.25% (rounded off)