A Treasury bond is quoted at a price of 101: 00 with a current yield of 5.94%.What is the coupon rate?

Question

Quizplus · Accepted Answer

The price of the bond is quoted at 101:00, which means it is trading above par value. The current yield is 5.94%, which is calculated by dividing the annual interest payment by the current market price. We can use this information and the face value to calculate the annual interest payment:

Current Yield = (Annual Interest Payment / Current Market Price) x 100%
5.94% = (Annual Interest Payment / $1,010) x 100%
Annual Interest Payment = $59.94

Since the face value of the bond is $1,000, the coupon rate can be calculated as follows:

Coupon Rate = (Annual Interest Payment / Face Value) x 100%
Coupon Rate = ($59.94 / $1,000) x 100%
Coupon Rate = 5.94%

Therefore, the coupon rate for this Treasury bond is 5.94%.

A Treasury Bond Is Quoted at a Price of 101