Annual coupon rate on the Bond
The Coupon rate of the Bond is calculated using financial calculator as follows (Normally, the rate is calculated either using EXCEL Functions or by using Financial Calculator)
Variables |
Financial Calculator Keys |
Figure |
Par Value/Face Value of the Bond [$1,000] |
FV |
1,000 |
Coupon Amount |
PMT |
? |
Market Interest Rate or Yield to maturity on the Bond [3.00% x ½] |
1/Y |
1.50 |
Maturity Period/Time to Maturity [10 Years x 2] |
N |
20 |
Bond Price [-$1,056] |
PV |
-1,056 |
We need to set the above figures into the financial calculator to find out the semi-annual coupon amount. After entering the above keys in the financial calculator, we get the semi-annual coupon amount (PMT) = $18.26.
The coupon rate is calculated by dividing the annual coupon amount with the par value of the Bond
So, Annual Coupon Rate = [Annual Coupon Amount / Par Value] x 100
= [($18.26 x 2) / $1,000] x 100
= [$36.52 / $1,000] x 100
= 3.65%
“Hence, the annual coupon rate on the Bond will be 3.65%”
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