Question

Suppose a​ five-year, $1000 bond with annual coupons has a price of $903.21 and a yield to maturity of 5.5 %. What is the​ bond's coupon​ rate?

Answer 1

Approx YTM=[Annual coupon+(Face value-Present value)/time to maturity]/(Face value+Present value)/2

0.055=[Annual coupon+(1000-903.21)/5]/(1000+903.21)/2

0.055(1000+903.21)/2=Annual coupon+(1000-903.21)/5

Annual coupon=[0.055(1000+903.21)/2]-(1000-903.21)/5

=$32.334(Approx)

Hence bond's coupon rate=Annual coupon/Face value

=(32.334/1000)

=3.23%(Approx).