A company releases a five-year bond with a face value of $1,000 and coupons paid semiannually. If market interest rates imply a YTM of 10 %, what should be the coupon rate offered if the bond is to trade at par?

Question

Business

Jaquan Wall

22 March, 07:20

A company releases a five-year bond with a face value of $1,000 and coupons paid semiannually. If market interest rates imply a YTM of 10 %, what should be the coupon rate offered if the bond is to trade at par?

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Answers (1)

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Alonso · Answer 1

the coupon rate offered if the bond is to trade at par is 5%

Explanation:

The Coupon Rate of Bond is the rate of payment the holder of bond expects from the Bond Issuer.

Note : The bond is to trade at par, therefore Fair Value or Present Value of this Bond is equal to the par value.

pv = $1,000

ytm = 10%

n = 5 years

fv = $1,000

p/yr = 2

pmt = ?

Using a Financial Calculator:

pmt = 50

Therefore Coupon Rate = 50/1000*100 = 5%