Sue can either borrow $10,\!000$ dollars for $5$ years with a simple interest of $7\%$ annually or an interest which compounds a
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Answer:
Coupon rate = 0.04292 or 4.292%
Explanation:
To calculate the coupon rate of the bond, we will, use the formula for the price of the bond. As the bond is an annual bond, the coupon payment, number of periods and semi annual YTM will be,
Coupon Payment (C) = x
Total periods (n)= 8
r or YTM = 0.051 or 5.1%
The formula to calculate the price of the bonds today is attached.
948 = x * [( 1 - (1+0.051)^-8) / 0.051] + 1000 / (1+0.051)^8
948 = x * 6.437166243 + 671.7045216
948 - 671.7045216 = x * 6.437166243
276.2954784 / 6.437166243 = x
x = $42.92191128 rounded off to $42.92
Thus, the coupon payment on bond is $42.92
As the coupon payment is calculated by multiplying the coupon rate with the face value of the bond, then the coupon rate will be:
Coupon payment = face value * coupon rate
42.92 = 1000 * Coupon rate
Coupon rate = 42.92 / 1000
Coupon rate = 0.04292 or 4.292%
