Question

This Question: 1 pt This Quiz: 10 pts possible Suppose a five-year $1.000 bond with annual coupons has a price of 5896 25 and a yield to maturity of 5.9%. What is the bond's coupon rate The bonds coupon rate is * (Round to three decimal places

Answer 1

Price of a bond is mathematically represented as: 1 1 (1+ i)" P C i (1) where P is price of bond, with periodic coupon C, n periods to maturity, periodic YTM i and face value M.

n = 5, i = 5.9%, M = $1000, P = $896.25

$896.25 = C * \frac{1-\frac{1}{(1 + 0.059)^{5}}}{0.059} + \frac{1000}{(1 + 0.059)^{5}}$

896.25 = C * 4.2238 + 750.793

145.457 = C * 4.2238

C = $34.44

Coupon Rate = Annual Coupon/Par Value = $34.44/$1000 = 3.444%