Question

A bond has ten years until maturity. The face value on the bond is $1,000.00, while the coupon rate attached to the bond is 9.25%. The bond pays coupons on an annual basis. Investors seek a 7.28% return on the bond.

What is the yearly coupon for this bond?

Answer 1

The yearly coupon for this bond is $92.50, calculated by multiplying the face value ($1,000) by the coupon rate (9.25%).

Step-by-step explanation:

To calculate the yearly coupon for the bond, you multiply the face value of the bond ($1,000) by the coupon rate (9.25%). The formula for calculating the yearly coupon payment is:

`\[ \text{Yearly Coupon} = \left( \frac{\text{Coupon Rate}}{100} \right) * \text{Face Value} \]`

Substituting the given values into the formula, we get:

`\[ \text{Yearly Coupon} = \left( (9.25)/(100) \right) * $1,000 = $92.50 \]`

This means that investors holding this bond will receive $92.50 annually as interest payments.

Understanding bond calculations is essential for investors to assess the potential returns from their investments. The coupon rate represents the annual interest rate on the bond, and multiplying it by the face value provides the yearly coupon payment.