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A company releases a​ five-year bond with a face value of​ $1,000 and coupons paid semiannually. If market interest rates imply a YTM of 10​%, what should be the coupon rate offered if the bond is to trade at​ par?

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Zviko

Answer:

the coupon rate offered if the bond is to trade at​ par is 5%

Explanation:

The Coupon Rate of Bond is the rate of payment the holder of bond expects from the Bond Issuer.

Note : The bond is to trade at par, therefore Fair Value or Present Value of this Bond is equal to the par value.

pv = $1,000

ytm = 10%

n = 5 years

fv = $1,000

p/yr = 2

pmt = ?

Using a Financial Calculator :

pmt = 50

Therefore Coupon Rate = 50/1000×100= 5%

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