Buttercup Inc. just issued RM1,000 par 30-year bonds. Each bond was sold for
RM1,107.20 and pay interest semiannually. Investors require a rate of 7.75% on the
bonds. What is the bonds' coupon rate?
RM1,000 par 30-year bonds. Each bond was sold for RM1,107.20 and pay interest semiannually. Required rate of return 7.75%. A coupon payment on a bond is a periodic interest payment that the bondholder receives during the time between when the bond is issued and when it matures. For bonds: P = F*if((1 - (1 + i)^-n)/i) + M(1 + i)^-n where: C = F * iF = coupon payment N = number of payments i = market interest rate, or required yield, M = face value P = market price of bond. The bonds' coupon rate if = (P - M(1 + i)^-n)/(F*((1 - (1 + i)^-n)/i)) = (1107.2 - 1000/1.0775^30)/(1000*((1 - 1/1.0775^30)/0.0775)) = 8.68%.