Suppose an individual pays $4,000 for a $5,000 face-value, coupon-bearing bond that pays $400 per year in interest and will be held until it matures in ten years. The coupon rate on this bond is
A) 10 percent.
B) 8 percent.
C) 6 percent.
D) 5 percent.

Question

Quizplus · Accepted Answer

The coupon rate on a bond is calculated by dividing the annual interest payment by the face value of the bond. So, in this case, the coupon rate is ($400/$5,000) = 0.08, or 8%. Therefore, the best choice is B.

Suppose an Individual Pays $4,000 for a $5,000 Face-Value, Coupon-Bearing