Question

Calculate the coupon rate of an eight-year with a face value of $10,000. Coupon payments are paid semiannually. The current market price of the bond is $9006.6568 and has a yield to maturity of 6.5%?

Select one:

5.87%

4.888%

3.91%

6.84%

Answer 1

Answer : 4.888%

Explanation:

current market value of bond = Coupon Payment X PVFA(R,n period) + Redemption Price X PVF(R,Nth period)

9006.6568 = Coupon Payment X PVAF(6.5%/2,16) + 10000(6.5%/2,16th)

9006.6568 = Coupon Payment X 12.32 + 10000 X .5994

9006.6568 = Coupon Payment X 12.32 + 5994

Coupon Payment X12.32 = 9006.6568 - 5994

Coupon Payment X12.32 = 3012.6568

Coupon Payment = 3012.6568/12.326

Coupon Payment = 244.4

coupon rate = Coupon payment / Face value

coupon rate = 244.4/ 10000

coupon rate = 2.444% semiannual

coupon rate = 2.444% semiannual X 2 = 4.888% per annual

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