Question

Asked Nov 7, 2019

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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 8%, what should be the coupon rate offered if the bond is to trade at par?

Step 1

When the bond is trading at par, that is at a face value of $1,000 then the coupon rate on the bond is equal to the yield to maturity.

Bond Price is $1000

Face Value “*FV” *is $1000

r = semi-annual YTM = 4%

Number of period “n” is 10 (5*2)

It can be proved as follows:

Step 2

Annual Coupon = 2*$40

Annu...

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