Question

The current price of a 10-year Bond, $1000 par value bond is $1.158,91. Interest on this bond is paid every six months, and the nominal annual yield is 14%. Given these facts, what is the annual coupon rate on this bond? Select one:
a. 10%
b. 12%
c. 14%
d. 17%

Answer 1

Answer:

C) 14%

Explanation:

The nominal annual yield is exactly the same as the bond's annual coupon rate. The nominal annual yield is calculated as a fixed percentage of the bond's par value and it doesn't change if the market price of the bond increases or decreases.

The bond's current yield is the actual interest rate that the bond is paying since its calculation is based on the bond's market price, not its par value.