Question

An semi-annual coupon bond with a $2,000 face value matures in 4 years. The bond currently sells for $1627.412 and has a 12 percent yield to maturity. What is the bond’s nominal coupon rate?

Answer 1

You need to use a Financial calculator to solve this problem. You can download it.

N = 8 (The Bond is for 4 years, and semiannual payments, so 8 payments)

PV = 1627.412 (The present value of the bond is $1627.412)

FV = -2,000 (The Face value of bond is $2,000)

I/Y => 12 / 2 = 6 (Annual yield is 12%, so semiannual will be 6%)

CPT + PMT = 60

So semiannual payment is 60, annual will be 120.

The coupon rate is calculated on the face value. So (120/2000)*100 = 6%

The nominal coupon rate of the bond is 6%

If you find the solution helpful, then please give a rating.