Question

Treasury bonds paying an 8% coupon rate with semiannual payments currently sell at par value. What coupon rate would they have to pay in order to sell at par if they paid their coupons annually? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

8.16%

Step-by-step explanation:

The computation of the coupon rate is shown below:

= (1 + coupon rate ÷ 2 )^2 - 1

where,

The coupon rate is 0.08

Now placing these values to the above formula

So, the coupon rate is

= (1 + 0.08 ÷ 2 )^2 - 1

= 0.0816

= 8.16%

Hence, the coupon rate that need to be sell if it is paid annually is 8.16% and the same is to be considered