Question

A bond has a par value of $1,000, a current yield of 7.17 percent, and semiannual coupon payments. The bond is quoted at 104.68. What is the amount of each coupon payment?

Answer 1

Each payment = $37.52778

Step-by-step explanation:

Given:

Bond value = $1,000

Current yield = 7.17% = 0.0717

Bond quoted = 104.68%

Payment method = Semi-annual = 2 payment

Computation of annual coupon amount:

Current yield = Annual coupon / (Bond value × Bond quoted)

0.0717 = Annual coupon / ($1,000 × 104.68%)

0.0717 = Annual coupon / ($1,046.8)

Annual coupon = 0.0717 × $1,046.8

Annual coupon = $75.05556

Computation of each payment:

Each payment = Annual coupon amount / 2 payment

Each payment = $75.05556 / 2

Each payment = $37.52778