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What is the coupon rate of an annual coupon bond that has a yield to maturity...

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Finance

  1. What is the coupon rate of an annual coupon bond that has ayield to maturity of 5.5%, a current price of $949.81, a par valueof $1,000 and matures in 15 years?

    6.33%

    4.70%

    3.07%

    5.00%

Answer & Explanation Solved by verified expert
3.9 Ratings (753 Votes)

Information provided:

Par value= future value= $1,000

Time= 5 years

Yield to maturity= 5.50%

Current price= present value= $949.81

The coupon rate is calculated by first computing the coupon payment.

Enter the below in a financial calculator to compute the coupon payment:

FV= 1,000

N= 15

I/Y= 5.50

PV= -949.81

Press the CPT key and PMT to compute the annual payment.

The value obtained is 49.99.

Therefore, the coupon payment is $49.99.

Coupon rate= Coupon payment/ Par value

                        = $49.99/ $1,000

                        = 0.05*100

                        = 5%.

Hence, the answer is option d.
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Transcribed Image Text

What is the coupon rate of an annual coupon bond that has ayield to maturity of 5.5%, a current price of $949.81, a par valueof $1,000 and matures in 15 years?6.33%4.70%3.07%5.00%

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