Question

A fourteen-year, semiannual coupon bond is selling for $898.56. The bond has a face value of $1,000 and a yield to maturity of 6.03 percent. What is the coupon rate

Answer 1

The coupon rate for the bond is 6.03%.

Step-by-step explanation:

The coupon rate is the annual interest payment expressed as a percentage of the bond's face value. In this case, the bond has a face value of $1,000 and is selling for $898.56. Since the bond is semiannual and has a yield to maturity of 6.03 percent, we can calculate the coupon rate by finding the semiannual interest payment that corresponds to this yield.

To find the semiannual interest payment, we use the formula:

Coupon Rate = (Semiannual Interest Payment / Face Value) * 100%

Plugging in the given values, we get:

Coupon Rate = (Semiannual Interest Payment / $1,000) * 100% = 6.03%

Now, we can solve for the semiannual interest payment:

Semiannual Interest Payment = (Coupon Rate / 100%) * Face Value = (6.03% / 100%) * $1,000 = $60.30

Therefore, the coupon rate for this bond is 6.03%.

Answer 2

The coupon rate of the bond is 8.91%.

Step-by-step explanation:

The coupon rate of a bond is the annual interest payment divided by the face value of the bond. In this case, the bond has a face value of $1,000 and a yield to maturity of 6.03 percent. Since the bond is semiannual, it pays interest twice a year. To find the coupon rate, we divide the annual interest payment by the face value:

Coupon Rate = (Annual Interest Payment / Face Value) x 100

With a yield to maturity of 6.03 percent, the annual interest payment can be calculated as follows:

1. Yield to Maturity = (Annual Interest Payment / Bond Price) x 100
2. 6.03 = (80 / 898.56) x 100
3. 6.03 = 8.91%

Therefore, the coupon rate of the bond is 8.91%.