A company releases a five-year bond with a face value of $1 000 and coupons paid semi-annually. If market interest rates imply a YTM of 6%, what should be the coupon rate offered if the bond is to trade at par?

Question

Quizplus · Accepted Answer

If a bond is traded at par, it means its market price is equal to its face value. In order to make the bond trade at par, the coupon rate offered should be equal to the prevailing market interest rate, which is also the yield to maturity (YTM) of the bond. Therefore, the coupon rate offered should be 6%.

A Company Releases a Five-Year Bond with a Face Value