Question

A(n) $18,000 face coupon bond with a $50 annual coupon payment has a coupon rate of ______%?

Answer 1

Solution:

The formula for calculating the coupon rate of a bond is

= Annual coupon payment / Face value of the bond

As per the information given in the question we have

Annual coupon payment = $ 50 ; Face value of the bond = $ 18,000 ;

Applying the above information in the formula we have the coupon rate of the bond as

= $ 50 / $ 18,000

= 0.002778

= 0.2778 %

Thus the coupon rate of the bond is

= 0.2778 % ( when rounded off to four decimal places )

= 0.28 % ( when rounded off to two decimal places )