A bond purchaser bought a bond from which she receives $800 a year from the issuer. If the face value of the bond is __________ then the coupon rate is __________.

Question

Quizplus · Accepted Answer

To find the face value of the bond, we need to divide the coupon payment by the coupon rate (expressed as a decimal):
Face Value = Coupon Payment / Coupon Rate
We are given the coupon payment ($800), but not the coupon rate. Therefore, we need to use another piece of information: the fact that the bond purchaser receives $800 per year.
This implies that the coupon payment is equal to the annual interest payment, which is usually calculated as a percentage of the face value. Therefore, if we divide the annual coupon payment by the face value of the bond, we should get the coupon rate (expressed as a decimal):
Coupon Rate = Coupon Payment / Face Value
If the face value is $10,000, then the coupon rate is:
Coupon Rate = $800 / $10,000 = 0.08 = 8%
Therefore, the answer is C: $10,000; 8 percent.

A Bond Purchaser Bought a Bond from Which She Receives