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4) Fred bought a $1,000 face value bond issued by Zest Corporation for $1,200. The bond...

4) Fred bought a $1,000 face value bond issued by Zest Corporation for $1,200. The bond matures in 2020 and pays him an annual interest payment of $55. What is the bond's coupon rate? (Round to the nearest thousands place of a percent i.e. 0.037 is 3.7%)

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Answer #1

The coupon rate is always based on the bond's face value.

Coupon rate = Annual cash flow / Face value

Coupon rate = 55 / 1000 = 0.055

Coupon rate = 5.5%

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