# The anticipated coupon rate on notes

**Question description**

Using the regular Treasury note of problem 2:( A Treasury note paying an annual coupon of 5.06%. The other is a TIPS which pays 3% interest annually.

A.What is its price if investors’ required rate of return is 6.09 percent on similar bonds? Treasury notes pay interest semi-annually.

*A
6% annual interest rate compounded semi-annually represents an effective rate
of 6.09%. Therefore the coupon rate should be 6% + 3% = 9%.* -

b. Erron Corporation wants to issue five- year notes but investors require a credit risk spread of 3 percentage points. What is the anticipated coupon rate on the Erron notes?

## Tutor Answer

Brown University

1271 Tutors

California Institute of Technology

2131 Tutors

Carnegie Mellon University

982 Tutors

Columbia University

1256 Tutors

Dartmouth University

2113 Tutors

Emory University

2279 Tutors

Harvard University

599 Tutors

Massachusetts Institute of Technology

2319 Tutors

New York University

1645 Tutors

Notre Dam University

1911 Tutors

Oklahoma University

2122 Tutors

Pennsylvania State University

932 Tutors

Princeton University

1211 Tutors

Stanford University

983 Tutors

University of California

1282 Tutors

Oxford University

123 Tutors

Yale University

2325 Tutors