Question
A bond hås a \( \$ 1,000 \) face value, a market price of \( \$ 989 \), and pays interest payments of \( \$ 69.50 \) every year. What is the coupon rate?
Ask by Howell Kelley. in the United States
Feb 26,2025
Upstudy AI Solution
Tutor-Verified Answer
Answer
The coupon rate is 6.95%.
Solution
The coupon rate is calculated by dividing the annual interest payment by the face value of the bond. Here’s the calculation:
Coupon Rate = (Annual Interest Payment) / (Face Value)
Coupon Rate = 69.50 / 1000
Coupon Rate = 0.0695 or 6.95%
So, the coupon rate is 6.95%.
Note: The market price of the bond does not affect the coupon rate; it only affects the yield or return if you are evaluating the investment today.
Answered by UpStudy AI and reviewed by a Professional Tutor
Like
error msg
Explain 
Simplify this solution The Deep Dive
To find the coupon rate, you can use the formula: \[ \text{Coupon Rate} = \frac{\text{Annual Interest Payment}}{\text{Face Value}} \times 100 \] In this case, the annual interest payment is \( \$69.50 \) and the face value is \( \$1,000 \). \[ \text{Coupon Rate} = \frac{69.50}{1000} \times 100 = 6.95\% \] Therefore, the coupon rate of the bond is \( 6.95\% \).
