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

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.