Answer:
The coupon rate is 3.41%
Step-by-step explanation:
The price of a bond is calculated as the present value of the annuity payments of its interest plus the present value of the face value of the bond. The formula to calculate the price of the bond is attached.
As the bond is an annual coupon paying bond, we determine the following,
r = 5.7%
n = 5 years or 5
The C or coupon payment is unknown. Let x be the coupon rate paid by the bond. Then C or coupon payment is 1000 * x or 1000x.
We know the current price of the bond. Thus putting in the available values for all the variables, we can calculate the value of x which is the coupon rate.
902.86 = 1000x * [(1 - (1+0.057)^-5) / 0.057] + 1000 / (1+0.057)^5
902.86 = 1000x * (4.246965615) + 757.92296
902.86 - 757.92296 = 4246.965615x
144.93704 / 4246.965615 = x
x = 0.03412 or 3.412% rounded off to 3.41%