Question

Beam Inc. bonds are trading today for a price of ​$633.03. The bond currently has 16 years until maturity and has a yield to maturity of 5.51​%. The bond pays annual coupons and the next coupon is due in one year. What is the coupon rate of the​ bond?

Answer 1

Given about Beam Inc.'s bond,

Current price of the bond = $633.03

years remaining to maturity = 16 years

yield to maturity on bond = 5.51%

coupons are paid annually,

Face value of bond = $1000

annual coupon can be calculated on financial calculator using following values:

FV = 1000

PV = -633.03

N = 16

I/Y = 5.51

compute for PMT, we get PMT = 20

So, annual coupon on the bond = $20

So, coupon rate = annual coupon/face value = 20/1000 = 2%

So, Coupon rate of the bond = 2%