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1 December, 16:37

AB Builders, Inc., has 23-year bonds outstanding with a par value of $2,000 and a quoted price of 96.849. The bonds pay interest semiannually and have a yield to maturity of 6.89 percent. What is the coupon rate

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  1. 1 December, 16:59
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    Coupon rate is 6.62%

    Explanation:

    The question requires that we solve for the coupon rate on the bond. In order to do we first calculate the coupon payment on the bond semi-annually using the pmt formula in excel

    =pmt (rate, nper,-pv, fv)

    rate is 6.89%/2 because it is a six month yield to maturity that is needed

    nper is the number of years to maturity multiplied by 2 i. e 23*2=46

    pv is the current price of the bond i. e 96.849%*2000=$1936.98

    fv is the future value at $2000

    =pmt (6.89%/2,46,-1936.98,2000)

    pmt=66.15 semi-annually

    but 66.15*2=$132.3 annually

    Coupon rate = pmt/face value

    =132.30/2000

    =6.62%
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