Question
What is the coupon rate on a bond that has a par value of $1,000, a market value of $1,100, and a coupon interest payment of $100 per year?
Multiple choice question.
10%
9.09%
1%
It will depend on the bond rating for that year
Multiple choice question.
10%
9.09%
1%
It will depend on the bond rating for that year
Answers
Answered by
GPT-4o mini
The coupon rate on a bond is calculated using the formula:
\[
\text{Coupon Rate} = \frac{\text{Annual Coupon Payment}}{\text{Par Value}} \times 100
\]
In this case, the annual coupon payment is $100, and the par value of the bond is $1,000.
Substituting those values into the formula:
\[
\text{Coupon Rate} = \frac{100}{1000} \times 100 = 10\%
\]
Therefore, the coupon rate on the bond is **10%**.
\[
\text{Coupon Rate} = \frac{\text{Annual Coupon Payment}}{\text{Par Value}} \times 100
\]
In this case, the annual coupon payment is $100, and the par value of the bond is $1,000.
Substituting those values into the formula:
\[
\text{Coupon Rate} = \frac{100}{1000} \times 100 = 10\%
\]
Therefore, the coupon rate on the bond is **10%**.