Smiley Industrial Goods has $1,000 face value bonds on the market with semiannual interest payments, 13.5 years to maturity, and a market price of $1,023.At this price, the bonds yield 6.4 percent.What must be the coupon rate on these bonds?

Question

Quizplus · Accepted Answer

The coupon rate is the annual interest payment divided by the face value of the bond. In this case, the annual interest payment is $1,000 * 6.4% / 2 = $32. The face value of the bond is $1,000, so the coupon rate is $32 / $1,000 = 3.2%.

Smiley Industrial Goods Has $1,000 Face Value Bonds on the Market