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13 March, 19:03

A 22-year, semiannual coupon bond sells for $1,066.57. The bond has a par value of $1,000 and a yield to maturity of 6.78 percent. What is the bond's coupon rate

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  1. 13 March, 22:41
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    The answer is 7.37%

    Explanation:

    Solution

    Given that

    Bond per value = future value = $1000

    The current price = $1,066.57

    Time = 22 years * 2

    =44 semi-annual periods

    The year of maturity = 6.78%/2 = 3.39%

    Thus

    The coupon rate is computed by first calculating the amount of coupon payment.

    So

    By using a financial calculator, the coupon payment is calculated below:

    FV = 1,000

    PV = - 1,066.57

    n = 44

    I/Y = 3.39

    Now we press the PMT and CPT keys (function) to compute the payment (coupon)

    What was obtained is 36.83 (value)

    Thus

    The annual coupon rate is: given as:

    = $36.83*2 / $1,000

    = $73.66 / $1,000

    = 0.0737*1,00

    =7.366% or 7.37%

    Therefore 7.37% is the bond's coupon rate.
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Home » Business » A 22-year, semiannual coupon bond sells for $1,066.57. The bond has a par value of $1,000 and a yield to maturity of 6.78 percent. What is the bond's coupon rate
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