You own some Treasury bonds, as part of your portfolio, which is paying an 8% coupon...
You own some Treasury bonds, as part of your portfolio, which is paying an 8% coupon rate with semiannual payment. This bond currently is trading at its par value. How much should be the coupon rate if they paid their coupons annually? (given the fact that they want to sell at par value)
Homework Answers
Annual Coupon Rate required to trade at par = (1+Semi-annual rate)^2 - 1
= (1+4%)^2 - 1
= 8.16%
Hence, required annual coupon rate = 8.16%
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