A $1,000 face value bond is currently quoted at 101.2. The bond pays semiannual payments of $27.50 each and matures in 6 years. What is the coupon rate?

Question

Quizplus · Accepted Answer

To find the coupon rate, we need to calculate the annual payment first:

Annual payment = Semiannual payment x Number of payments per year
Annual payment = $27.50 x 2 = $55

Then, we can use the following formula to calculate the coupon rate:

Coupon rate = Annual payment / Bond face value

Coupon rate = $55 / $1,000

Coupon rate = 0.055 or 5.50%

Therefore, the answer is E.

A $1,000 Face Value Bond Is Currently Quoted at 101