A 10-year Circular File bond with a face value of $1,000 pays interest once a ye

Question

A 10-year Circular File bond with a face value of $1,000 pays interest once a year of $70 and sells for $960. a. What are its coupon rate and yield to maturity? (Do not round intermediate calculations. Enter the coupon rate as a percent rounded to 1 decimal place and the yield to maturity as a percent rounded to 2 decimal places.) Coupon rate 7 % Yield to maturity % b. If Circular wants to issue a new 10-year bond at face value, what coupon rate must the bond offer? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Coupon rate %

Explanation / Answer

Coupon rate:

= $70/$1,000

= 7%

b)

If the coupon rate rate is set at 7.59%, bond will sell at par

1 Face value (FV) $                                        1,000 2 Coupon rate 7.00% 3 Number of compounding periods per year                                                    1 1*2/3 Interest per period (PMT) $                                        70.00 Bond price (PV) $                                   (960.00) 4 Number of years to maturity 10 5 = 4*3 Number of compounding periods till maturity (NPER)                                                  10 Bond yield to maturity RATE(NPER,PMT,PV,FV) Bond yield to maturity 7.59%

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