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AB Builders, Inc., has 23-year bonds outstanding with a par value of $2,000 and a quoted price of 96.849. The bonds pay interest semiannually and have a yield to maturity of 6.89 percent. What is the coupon rate

Respuesta :

Answer:

Coupon rate is 6.62%

Explanation:

The question requires that we solve for the coupon rate on the bond.In order to do we first calculate the coupon payment on the bond semi-annually using the pmt formula in excel

=pmt(rate,nper,-pv,fv)

rate is 6.89%/2 because it is a six month yield to maturity that is needed

nper is the number of years to maturity multiplied by 2 i.e 23*2=46

pv is the current price of the bond i.e 96.849%*2000=$1936.98

fv is the future value at $2000

=pmt(6.89%/2,46,-1936.98,2000)

pmt=66.15 semi-annually

but 66.15*2=$132.3 annually

Coupon rate =pmt/face value

                       =132.30/2000

                       =6.62%

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