Question

A bond pays $80 per year in interest and has a $1,000 par value. The market rate of interest is 6%. What is the coupon rate for this bond

Answer 1

8%

Step-by-step explanation:

The coupon is the amount of periodic cash payable to bondholders which is usually a percentage of the bond's face value.

The coupon of $80 is payable annually in this case, hence, based on the face value( par value) of $1,000 per bond, the coupon rate is computed as shown thus:

annual coupon=face value*coupon rate

annual coupon=$80

face value=$1000

coupon rate=unknown

$80=$1000*coupon rate

coupon rate=$80/$1000

coupon rate=8%