Wheeler's has bonds on the market with 13 years to maturity, a YTM of 7.6 percent, and a current price of $901.98. The bonds make semiannual payments and have a face value of $1,000. What is the coupon rate?

Question

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The coupon rate can be found by using the bond price formula, where the price of the bond is equal to the present value of its future cash flows, which are the coupon payments and the face value payment at maturity. Given the bond's price ($901.98), YTM (7.6% annually, or 3.8% semiannually since payments are semiannual), years to maturity (13 years, or 26 periods), and face value ($1,000), we can solve for the coupon payment. The coupon payment is the unknown we are solving for, which, when annualized, gives us the coupon rate. Using the bond pricing formula and plugging in the given values, we find that the annual coupon rate that matches the given bond price is 6.40 percent.

Wheeler's Has Bonds on the Market with 13 Years to Maturity