Answer:
correct option is c.4%
Explanation:
given data
maturity value = $1,000
nominal rate of return r = 10 percent = 5 % semi annually = 0.05
mature time t = 5 years = 10 semi annually
current market value = $768
solution
we apply here present value formula that is
present value = coupon rate × maturity value × [tex]\frac{1-(1+r)^{-t}}{r}[/tex] + [tex]\frac{mature\ value}{(1+r)^{-n}}[/tex] ..............1
put here value and we get
$768 = coupon rate × $1000 × [tex]\frac{1-(1+0.05)^{-10}}{0.05}[/tex] × [tex]\frac{1000}{(1+0.05)^{-10}}[/tex]
solve it we get
coupon rate = 1.99549 % Semi-annual
so here annual coupon interest rate is = 2 × 1.99549 %
annual coupon interest rate is 3.99 = 4%
so correct option is c.4%
