Question

AB Builders, Inc., has 16-year bonds outstanding with a par value of $2,000 and a quoted price of 99.727. The bonds pay interest semiannually and have a yield to maturity of 6.56 percent. What is the coupon rate

Answer 1

6.54%

Step-by-step explanation:

Face Value = $2,000

Current Price = 2000 x 99.727% = 1994.54

YTM = 6.56%

We can find the coupon rate by a simple formula

Coupon Rate = (Interest / Face value) x 100

We need to find interest first in order to find coupon rate

YTM = Interest / Current price

6.56% x 1994.54 = Interest

130.84 = Interest

Coupon Rate = (130.84 / 2000) x 100

Coupon Rate = 6.54%