Question

Consider the following bond where the coupons are paid annually,

Bond	CIBC
Price	$1036.50
YTM	5%
Years to maturity	5 years

What is the coupon rate of this bond? Enter your answer as a percentage. Do not include the percentage sign in your answer.

Enter your response below. Enter your answer rounded to 2 DECIMAL PLACES.

Answer 1

Bond price formula = Coupon amount * (1 - (1/(1+i)^n)/i + face value/(1+i)^n          
          
Bond price =       1036.5  
          
YTM=       5.00%   or 0.05
          
years=           5
Maturity value =       1000  
Bond price formula = Coupon amount * (1 - (1/(1+i)^n)/i + maturity value/(1+i)^n          
So, 1036.50 = (C*(1-(1/(1+0.05)^5))/0.05) + 1000/(1+0.05)^5          
1036.5 = C*       4.329476671   783.5261665
1036.50-783.5261665 = C*       4.329476671  
C=       58.43058013  
So, Annual coupon amount =        $58.43  

In % = Coupon amount/Par Value*100

58.43/1000*100

=5.84%

So coupon rate on bonds is 5.84%