Valley Manufacturing Inc.just issued $1,000 par 20-year bonds.The bonds sold for $758.18 and pay interest semiannually.Investors require a rate of 9% on the bonds.What is the bonds' coupon rate?

Question

Quizplus · Accepted Answer

The correct answer is A because 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 * 9% / 2 = $45, and the face value of the bond is $1,000, so the coupon rate is $45 / $1,000 = 6%.