Question

The bonds of CEPS Group sells for OMR 1,119.35. The yield to maturity is 10 percent and the maturity date is 11 years from today. What is the annual coupon rate of this bond if the face value is OMR 1,000?

Answer 1

The annual coupon rate is computed as shown below:

Bonds Price = Coupon payment x [ [ (1 - 1 / (1 + r)ⁿ ] / r ] + Par value / (1 + r)ⁿ

OMR 1,119.35 = Coupon payment x [ [ (1 - 1 / (1 + 0.10)¹¹ ] / 0.10 ] + OMR 1,000 / 1.10¹¹

OMR 1,119.35 = Coupon payment x 6.495061005 + OMR 350.4938995

Coupon payment x 6.495061005 = OMR 768.8561005

Coupon payment = OMR 768.8561005 / 6.495061005

Coupon payment = OMR 118.375501

So, the annual coupon rate will be computed as follows:

= Coupon payment / Face value

= OMR 118.375501 / OMR 1,000

= 11.84% Approximately

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