Question

Check My Work (No more tries available) Field Industries' outstanding bonds have a 25-year maturity and $1,000 par value. Their nominal yield to maturity is 9.25%, they pay interest semiannually, and they sell at a price of $850. What is the bond's nominal (annual) coupon interest rate

Answer 1

7.70%

Step-by-step explanation:

Semi-annual YTM = 9.25%/2 = 4.625%

Number of periods = 25*2 = 50 Periods

C = Coupon Amount

Price of the bond = Present Value of coupon interests + Present Value of Par Value

$850 = C*(PVIFA 4.625%, 50 Years) + $1,000*(PVIF 4.625%, 50 Years)

$850 = (C x 19.3667869) + ($1000 x 0.1042861)

$850 = (C x 19.3667869) + 104.29

$745.71 = (C x 19.3667869])

C = $745.71 / 19.3667869

C = $38.50

Coupon payment (C) = $38.50

Hence, annual Coupon Amount = $38.50 * 2 = $77.00

Bond Nominal (annual) Coupon Interest Rate = (Annual Coupon Amount / Par Value) x 100

Bond Nominal (annual) Coupon Interest Rate = ($77.00 / 1,000) x 100

Bond Nominal (annual) Coupon Interest Rate = 7.70%