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29 December, 09:49

Wheeler's has bonds on the market with 13 years to maturity, a YTM of 7.6 percent, and a current price of $901.98. The bonds make semiannual payments and have a face value of $1,000. What is the coupon rate?

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  1. 29 December, 09:52
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    The coupon rate is 6.40 percent.

    Explanation:

    From the data provided we have;

    Years to maturity = 13 years

    Yield to maturity = 7.6 percent

    Current price = $901.98

    Face value = $1000

    Bond price = C * [ (1 - {1 / [1 + (.076 / 2) ] (13 * 2) }) / (.076 / 2) ] + $1,000 / [1 + (.076 / 2) ] (13 * 2)

    C = $32.00

    coupon rate = (C * 2) / face value

    Coupon rate = ($32 * 2) / $1,000 =.0640

    Coupon rate = 6.40 percent
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