Question

Bonds A and B are 15-year, $1000 face value bonds. What is the interest rate (coupon rate) if Bond A pays $60 annually and Bond B pays $80 annually?

Answer 1

Bond A has a coupon rate of 6%, while Bond B has a coupon rate of 8%, calculated by dividing the annual payments by the bond's face value and multiplying by 100%.

Step-by-step explanation:

The coupon rate or interest rate of a bond can be calculated by taking the annual coupon payment and dividing it by the face value of the bond.

For Bond A, which pays $60 annually on a $1000 face value, the coupon rate is 6%, calculated by ($60 / $1000) × 100%.

Similarly, for Bond B, which pays $80 annually on a $1000 face value, the coupon rate is 8%, calculated by ($80 / $1000) × 100%. These rates represent the fixed annual payment to the investor relative to the face value of the bond.