A bond has yield to maturity of 7.15 percent; face value of $1,000; time to maturity of 11 years and pays coupons semiannually.

Question

4 years ago

11

If the price of the bond is $939.02, calculate the coupon rate of the bond.

1 answer:

maxonik [38] · Answer 1 · 2022-01-24T03:22:38+03:00

Answer:

6.34 %

Explanation:

For computing the coupon rate, first we have to determine the PMT by using the PMT formula that is shown on the attachment

Given that,

Present value = $939.02

Future value = $1,000

Rate of interest = 7.15% ÷ 2 = 3.58%

NPER = 11 years × 2 = 22 years

The formula is shown below:

= PMT(Rate;NPER;-PV;FV;type)

The present value come in negative

So, after solving this, the PMT is $31.70

It is semi annually

Now the annual PMT is

= $31.70 × 2

= $63.40

So, the coupon rate equals to

= $63.40 ÷ $1,000

= 6.34 %