Question

Siamtop Inc. offers a 15-year coupon bond with semiannual payments. The yield to maturity is 7.34 percent and the bonds sell at 96 percent of par. What is the coupon rate?

A. 6.90 percent
B. 5.80 percent
C. 6.40 percent
D. 7.50 percent

Answer 1

A. 6.90 percent

Step-by-step explanation:

Yield to maturity = [Annual Interest + (Par value - Market Value)/ no of year to Maturity ] / [(Par value - Market Value)/2]

0.0734 = [ Annual Interest + ( 100% - 96% ) / 15 ] / [ (100% + 98% ) / 2]

0.0734 = [ Annual Interest + ( 1.00 - 0.96 ) / 15 ] / [ (1.00 + 0.98 ) / 2]

0.0734 = [ Annual Interest + ( 0.04 ) / 15 ] / [ 1.98 / 2]

0.0734 = [ Annual Interest + 0.0027 ] / 0.99

0.0734 x 0.99 = Annual Interest + 0.0027

0.072666 - 0.0027 = Annual Interest

Annual Interest = 0.069966 = 7% (Rounded off)