Question

Treasury bonds paying an 10.50% coupon rate with semiannual payments currently sell at par value. What coupon rate would they have to pay in order to sell at par if they paid their coupons annually? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

Answer:

effective annual coupon rate = 10.77 %

Explanation:

given data

Coupon Rate = 10.50%

Type of Compounding = Semiannually  

Number of Payments in a Year (n) = 2

solution

we get effective annual coupon rate that is

effective annual coupon rate = $(1+\frac{r}{n})^n - 1$     ............................1

put here value and we get

effective annual coupon rate = $(1+\frac{0.1050}{2})^2 - 1$

effective annual coupon rate = 0.107756

effective annual coupon rate = 10.77 %