Question

A coupon bond with a face value of ​$1400 that pays an annual coupon of ​$100 has a coupon rate equal to nothing​%. ​(Round your response to the nearest whole​ number) What is the approximate​ (closest whole​ number) yield to maturity on a coupon bond that matures one year from​ today, has a par value of ​$1000​, pays an annual coupon of ​$75​, and whose price today is ​$1004.50​?A. 6% B. 5% С. 7% D, 4% E, 8%

Answer 1

Coupon rate = 7.14 %

yield to maturity = 7 %

correct answer is С. 7%

Step-by-step explanation:

given data

face value = $1400

annual coupon = $100

par value of ​$1000

annual coupon = ​$75

today price = $1004.50

solution

we get here first coupon rate that is

Coupon rate =
`(annual\ coupon)/(face\ value)` ...........1

Coupon rate =
`(100)/(1400)`

Coupon rate = 7.14 %

and

we get here yield to maturity that is

yield to maturity = [ annual coupon + ( par value - today price ) ] ÷ today price ...................2

put here value

yield to maturity =
`(75 + (1000-1004.50))/(1004.50)`

yield to maturity = 0.070184 = 7 %

so correct answer is С. 7%