Question

A $10,000 face value Treasury bond is quoted at a price of 101.6533 with a current yield of 4.87 percent. What is the coupon rate?
A) 5.20 percent
B) 4.48 percent
C) 5.41 percent
D) 4.95 percent
E) 4.27 percent

Answer 1

Answer:

D) 4.95 percent

Explanation:

The current yield formula can be used to determine the coupon payment which would thereafter be used to compute coupon rate as required:

current yield=coupon payment/current market price

current yield=4.87%

coupon payment=unknown

current market price=101.6533%*$10,000

current market price=$10,165.33  

4.87%=coupon payment/$10,165.33  

coupon payment=$10,165.33 *4.87%

coupon payment=$495.051571

coupon rate=coupon payment/face value

coupon rate=$495.051571 /$10,000

coupon rate=4.95%