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Beam Inc. bonds are trading today for a price of $1287.99. The bond currently has 22 years until...

Question:

Beam Inc. bonds are trading today for a price of $1287.99. The bond currently has 22 years until maturity and has a yield to maturity of 5.26%. The bond pays annual coupons and the next coupon is due in one year. What is the coupon rate of the bond?

Coupon rate of a Bond:

A bond is issued by a firm to raise capital. The coupon rate is the rate at which the firm pays the periodic coupons to the investors. The current price of bond is the present value of all the payments made discounted at yield to maturity.

Answer and Explanation:

1. The coupon rate of bond is 7.50%

Calculating the coupon rate:

  • Face value = $1,000
  • Number of periods, n = 22
  • Yield to maturity, r = 5.26% =...

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Learn more about this topic:

Bond Valuation: Formula, Steps & Examples

from Finance 301: Corporate Finance

Chapter 7 / Lesson 6
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