A company releases a five-year bond with a face value of $1000 and coupons paid semiannually. If market interest rates imply a YTM of 6%, what should be the coupon rate offered if the bond is to trade at par?

Question

Quizplus · Accepted Answer

If the bond is trading at par, then the coupon rate should be equal to the yield to maturity (YTM) which is 6%. This will make the present value of the bond's future cash flows equal to its face value. Therefore, bond coupon rate should be 6%.

A Company Releases a Five-Year Bond with a Face Value