Question

AB Builders, Inc., has 17-year bonds outstanding with a par value of $2,000 and a quoted price of 94.863. The bonds pay interest semiannually and have a yield to maturity of 7.07 percent. What is the coupon rate

Answer 1

13.47%

Step-by-step explanation:

yield to maturity = {coupon + [(face value - market value)/n]} / [(face value + market value)/2]

7.07% = {coupon + [($2,000 - $1,897.26)/34]} / [($2,000 + $1,897.26)/2]

7.07% = (coupon + $3.0218) / $1,948.63

coupon + $3.0218 = $1,948.63 x 7.07% = $137.7681

coupon = $137.7681 - $3.0218 = $134.7463

semiannual coupon rate = $134.7463 / $2,000 = 0.06737 x 2 = 0.1347 ≈ 13.47%