Ic8y6Drincessica Ic8y6Drincessica
  • 24-04-2017
  • Business
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A $1,000 face value bond is currently quoted at 101.2. the bond pays semiannual payments of $28.50 each and matures in six years. what is the coupon rate?

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sharmaenderp
sharmaenderp sharmaenderp
  • 27-04-2017
Coupon rate is the yearly interest earned by a loan and it can be calculated with

[tex] C = \frac{i}{p} [/tex]

where i is the annual interest and p is the par value of the bond or the initial loan amount.

For this particular case, since the semiannual payment is $28.50, then the annual payment is 2 x 28.50 = $57.00.

Thus, we have 

[tex] C = \frac{57}{1000} = 0.057 [/tex]

From this, the coupon rate is 0.057 x 100% = 5.7%.
Answer: 5.7%

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