Beam Inc. bonds are trading today for a price of

?$905.41.

The bond currently has

18

years until maturity and has a yield to maturity of

8.01?%.

The bond pays annual coupons and the next coupon is due in one year. What is the coupon rate of the? bond?

The coupon rate of the bond is

nothing ?%.

Price of bond = Interest x PVIFA(YTM%,n) + Redemption value x PVIF(YTM%,n)

Price of bond = $905.41

YTM = 8.01%

n = no of year till maturity = 18

PVIFA(YTM%,n) = [1-(1/(1+r)^n / r ]
PVIFA(8.01%,18) = [1-(1/(1+8.01%)^18 / 8.01%]
=[1-(1/(1+0.0801)^18 / 0.0801]
=[1-(1/(1.0801)^18 / 0.0801]
= [ 1 - 0.2498 / 0.0801]
= 0.75016 / 0.0801
= 9.3654
PVIF(8.01%,18) = 1/(1+8.01%)^18
=1/(1.0801)^18
= 0.24983
Value of bond = Interest x 9.3654 + 1000 x 0.24983
905.41 = Interest x 9.3654 + 249.83
= 655.58 = Interest x 9.3654
Interest = 70.0 $

Thus Coupon rate of bond = Interest/Face value of bond

= 70/1000

= 7.0%