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Business & Finance
Tutor: None Selected Time limit: 1 Day

IBM Inc. bonds are trading today for $1991.84. The bond currently has 22 years until maturity and has a yield of maturity of 3.17%. The bond pays annual coupons and the next coupon is due in 1 year. What is the coupon rate of the bond?

Jul 7th, 2015

Thank you for the opportunity to help you with your question!

When bond price = par value, coupon rate = yield to maturity

The bond price calculation can be done using this formula

P = {(C/R)*[1 – 1/(1+R)^T] + F/(1+R)^T}

P= bond price, C = coupon payment, R= yield to maturity T is time to maturity

1991.84= {(c/0.0317)*[1-0.5033]+1991.84/0.5033

c= 62.68%

Please let me know if you need any clarification. I'm always happy to answer your questions.
Jul 7th, 2015

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