A company issues a callable (at par)ten-year coupon bond with annual coupon payments.The bond can be called at par in one year after release or any time after that on a coupon payment date.On release,it has a price of $102.50 per $100 of face value,and has a yield to call of 4.8%.What is the bond's coupon rate?

Question

Quizplus · Accepted Answer

The bond's coupon rate is calculated based on the yield to call and the price above par. Given the yield to call is 4.8% and the bond is priced at $102.50, the coupon rate must be higher than the yield to call to justify the premium price. The correct coupon rate is 7.42%.

A Company Issues a Callable (At Par)ten-Year Coupon Bond with Annual