What is the coupon rate of a two-year,$10,000 bond with semiannual coupons and a price of $9543.45,if it has a yield to maturity of 6.8%?

Question

Quizplus · Accepted Answer

1. Determine the number of coupon payments: 2 years x 2 semiannual payments per year = 4 coupon payments
2. Determine the semiannual coupon payment: (face value x coupon rate) / 2 = (10,000 x coupon rate) / 2 = 5,000 x coupon rate
3. Determine the present value of the bond's four cash flows: PV = [5,000 x (1 - 1/(1+0.068/2)^4)]/(0.068/2) + 10,000/(1+0.068/2)^4 = $9,543.45
4. Solve for the coupon rate: $9,543.45 = [5,000 x (1 - 1/(1+r/2)^4)]/(r/2) + 10,000/(1+r/2)^4
Using trial and error or Excel, the coupon rate that satisfies the equation is 4.32%. Therefore, the answer is A) 4.32%.

What Is the Coupon Rate of a Two-Year,$10,000 Bond with Semiannual