8. A bond with 20 years to maturity is selling for $1,250 and has a yield to maturity of 13.5 percent. If this bond pays its coupon payments semi-annually and its par value is $1,000, what is the bond’s annual coupon rate?
Group of answer choices
A. 18.13 percent
C. 17.42 percent
D. 8.57 percent
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N = 20 * 2 = 40 (The Bond is for 20 Years, semiannual, so 40 payments)
PV = -1250 (The present value of the bond is $1250)
FV = 1,000 (The Face value of bond is $1,000)
I/Y = 13.5/2 = 6.75 (The YTM is for 1 year, so semiannual will be divided by 2)
CPT + PMT = 85.71
So 85.71 is the semiannual payment, so annual will be 85.71*2 = 171.42
So the coupon rate is (Coupon / Face Value) * 100
= (171.42 / 1000) * 100
The correct option is "B"
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