If an investor paid $900 for a bond with a $1,000 face value and a current yield of 10 percent, then the coupon rate is
A) 9 percent.
B) 10 percent.
C) 12 percent.
D) 15 percent.

Question

Quizplus · Accepted Answer

The coupon rate is found by dividing the annual coupon payment by the face value of the bond. The current yield is given by the annual coupon payment divided by the current market price. Given a current yield of 10 percent and a market price of $900, the annual coupon payment is $90 (10% of $900). To find the coupon rate, divide the annual coupon payment ($90) by the face value ($1,000), which gives 0.09 or 9 percent.

If an Investor Paid $900 for a Bond with a $1,000