Question

Consider the following bond where the coupons are paid semi-annually, Bond HSBC Price $1017 Years to maturity 7 years What is the coupon rate of this bond? Enter your answer as a percentage. Do not enter the percentage sign in your answer. Enter your response below. Enter your answer rounded to 2 DECIMAL PLACES. Number %

Answer 1

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%]	1/Y	3
Maturity Period/Time to Maturity [7 Years]	N	7
Bond Price [-$1,017]	PV	-1,017

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 annual coupon amount (PMT) = $32.73.

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

= [$32.73 / $1,000] x 100

= 3.27%

“Hence, the annual coupon rate on the Bond will be 3.27%”