What is the coupon rate for a bond with 3 years until maturity, a price of...

Question

Question

What is the coupon rate for a bond with 3 years until maturity, a price of $1,053.46, and a yield to maturity of 6%? Interest is paid annually.

Multiple Choice

Answer 1

Answer #1

Price of the bond = Interest amount *PVAF(6%,3years) + 1000 * PVF(6%,3years)

$ 1053.46 = interest amount * [1 - (1.06)^-3 ] / 0.06 + 1000 * 1/(1+0.06)³

1053.46 = interest amount * 2.673012 + 1000 * 0.839619

Interest amount * 2.673012 = 1053.46 - 839.6193

Interest amount * 2.673012 = 213.8407

Interest amount per year = $ 79.99991 per year

Interest rate = interest amount / par value = $79.99991 / 1000 = 0.799991

Interest rate = 8%

Option A is correct.

Answer 2

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