Coupon rate on the bonds can be calculated in the following way.
Explanation:
To find the coupon rate of the bond. All we need to do is to set up the bond pricing equation and solve for the coupon payment as follows:
P = $958 = C(PVIFA₆.₄₀%,11) + $1,000(PVIF₆.₄₀%,11)
Solving for the coupon payment, we get:
C = $58.57
The coupon payment is the coupon rate times par value. Using this relationship, we get:
Coupon rate = $58.57/$1,000
Coupon rate = .0586, or 5.86%
Calculator Solution:
Enter 11 6.40 ±$958 $1000
N l/Y PV PMT FV
$58.57
Coupon rate = $58.57/$1,000
Coupon rate = .0586, or 5.86%
