Question

AB Builders, Inc., has 18-year bonds outstanding with a par value of $2,000 and a quoted price of 102.037. The bonds pay interest semiannually and have a yield to maturity of 6.62 percent. What is the coupon rate

Answer 1

Answer:

6.82%

Explanation:

In this question we use the PMT formula that is shown on the attachment below:

Given that,  

Present value = 102.037% × $2,000 = $2,040.74

Future value = $2,000

Rate of interest = 6.62% ÷ 2 = 3.31%

NPER = 18 years  2 = 36 years

The formula is shown below:

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

The present value come in negative

So, after solving this, the monthly payment is $68.15

Now the coupon rate is

= PMT ÷ face value × 2

= $68.15 ÷ $2,000 × 2

= 6.82%