Question

4. EMC has bonds on the market making semi annual payments, with 10 years to maturity, a par value of $1,000, and a current price of $900. . At this price, the bonds yield 12 percent. What is the coupon rate?

A) 11.66%

B) 5.12%

C)10.26%

D) 11.26%

E) 12?%

Answer 1

Bond price =C*[1-(1+YTM)^-n / YTM] + [P/(1+YTM)^n]
Where,
C= Coupon amount
YTM = Yield To maturity =12%/2 =6
n = Number of periods=10*2 =20
P= Par value =1000
$900=C * [1 - (1 + 0.06)^-20 / 0.06] + [1000 / (1 + 0.06) ^20]
900 =C *11.4699 + 311.805
C *11.4699=900-311.808
C =588.192/11.4699
C =51.28
Therefore coupon rate = $51.28/1000 *2
=10.26%
Correct Answer =C)10.26%
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