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

Question

Quizplus · Accepted Answer

The correct answer is A. The coupon rate is the annual interest payment divided by the face value of the bond. In this case, the annual interest payment is $758.18 * 0.09 = $68.24. The face value of the bond is $1,000. Therefore, the coupon rate is $68.24 / $1,000 = 0.06824, or 6.824%.

Metal Fabricators Just Issued $1,000 Par 20-Year Bonds