Homework Answers
Information provided:
Par value= future value= $1,000
Time= 15 years
Yield to maturity= 6%
Current price=present value= $902.88
The coupon rate is calculated by first computing the coupon payment.
Enter the below in a financial calculator to compute the coupon payment:
FV= 1,000
PV= -902.88
N= 15
I/Y= 6
Press the CPT key and PMT to compute the coupon payment.
The value obtained is 50.
Hence, the amount of annual coupon payment is $50.
Coupon rate is computed using the below formula:
Coupon rate= Annual coupon payment/ Par value of the bond
= $50/ $1,000
= 0.05*100
= 5%
Therefore, the coupon rate is 5%.
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