Business, 07.04.2020 22:38 dessssimartinez6780

AB Builders, Inc., has 22-year bonds outstanding with a par value of $2,000 and a quoted price of 106.657. The bonds pay interest semiannually and have a yield to maturity of 6.74 percent. What is the coupon rate

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Answer from: bri9263

7.32%

Explanation:

The price of a bond is the present of its interest payment and the present value of redemption value (RV

Present value of the Redemption Value (RV) =

FV× (1+r/2)^(-2×n)

FV- 2000, r- yield rate, r/2= 6.74%/2 = 3.37%, n-22

=2000× (1.0337)^(-2×22)

= 465.233

Present Value of the coupon payment =Price of bond - PV of RV

= (106.657% × 2000) - 465.233

= $1667.90

PV of coupon payment= A × (1-(1+r)^(-2×n)

A- semiannual coupon payment, r -yield

1667.90 = A × (1-(1.0337)^(-2*22))/0.0337

1,667.90 = A × 22.7710

A = 1,667.90/22.7710

A= 73.246

Annual coupon payment = 2× 73.246= 146.493

Annual coupon rate = coupon payment/ face value

= (146.493/2,000 )× 100

= 7.32%

Answer from: patrickwilson

Coupon rate is 7.32%

Explanation:

In calculating the coupon rate on the bond,we first of all need to determine the amount of interest payable by the bond on semi-annual basis using the pmt formula in excel:

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

rate is the yield to maturity divided by 2 since it is a semi-annual interest paying bond i.e 6.74%/2

nper is the time to maturity of the bond multiplied by 2=22*2=44

the present value is the current price of the bond:$2000*106.657%=$2133.14

The fv is the face value of $2000

=pmt(6.74%/2,44,-2133.14 ,2000)

pmt= 73.25

annual pmt= 73.25*2= 146.49

coupon rate=pmt/face value= 146.49/2000

=7.32%

Answer from: Quest

Pay attention in class and maybe you would know

Answer from: Quest

The atomic nucleus is the small, dense region consisting of protons and neutrons at the center of an atom, discovered in 1911 by ernest rutherford based on the 1909 gold foil experiment.

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