Question

What is the annual coupon rate of a 7-year corporate bond given that its current price is $930, par = $1,000, semi-annual coupon, YTM=10%?

Question 3 options:

	4.29%
	3.14%
	8.46%
	8.59%

Answer 1

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River, Term [n] = 7 years X 2 periods yes year = 14 periods Current Price = $930 face Value = $1000 Yield to Maturity = 1/2 (10/2) = 5% or 0.05 per period Let the Couyou amount per period be x Value = Coupon amount X Reesent Value denuity factor (5140,14 perióds [face value X Present Value factor (5%, 14 periods ] 930 = 6 x 9.8986409] + [looox.5050679 ] 930 = 9.89 86409x + 505.067 9 x = 930 - 505.0679 9.8986409 Coupon amount for 6months [n] = $42.93 Coupon amount for lyear = 4293x2= 85.86 Now, Coupon nate = Coupon Amount x 100 face Value = 85.86 x 100 7000 - 7 8.586 % i.e. 8.59%