Question

Jerry just purchased a bond paying semiannual interest for a price of

$1,000.

Yields on bonds of similar risk are

10.2%.

The bond has a face value of

$1,000.

Based on this​ information, the coupon rate of the bond​ is:

​(Select the best choice​ below.)

A.

The coupon rate of the bond is 9.2%

B.

The coupon rate of the bond is 8.7%

C.

The coupon rate of the bond is 11.2%

D.The coupon rate of the bond is

10.2%.

E.

We need the maturity of the bond to solve this problem

Answer 1

We know that coupon rate can be calculated using the following formula,

Coupon rate = (Coupon payment*Number of coupon payments per year)/ Face Value

Where

Number of coupon payments per year = semi annual =2

Face value = 1000

and

Coupon payment can be calculated from the following formula,

P = Coupon payment*(1/y)*(1-(1/(1+y)^N)) + FV/ (1+y)^N

Where,

Price = 1000

y = 10.2%/2

Since we have all the values needed to calculate coupon rate except the value N

where N is the maturity of the bond.

Therefore,

Ans is E.

We need the maturity of the bond to solve this problem