Answer:
Coupon rate = 5.8%
Explanation:
The price of a bond is the present value (PV) of the future cash flows discounted at its yield.
So we will need to work back to ascertain the coupon rate
Step 1
Calculate the PV of redemption value and PV of interest payments
PV of Redemption
= 1.067^(-5) × 1000
=723.06
PV of the annual interest rate
= price of the bond - PV of redemption
= $964- 723.06
= 240.934
Step 2
Calculate the interest payment
Interest payment = PV of redemption value / annuity factor
Annuity factor =( 1 -(1+r)^(-n) )/r
Annuity factor at 6.7% for 5 years
Factor =( 1-1.067^(-5) )/0.067
= 4.1333
Interest payment = PV of the annual interest rate / Annuity factor
Interest payment=
=240.93/4.1333
=58.290
Step 3
Calculate the coupon rate
Coupon rate = interest payment/ par value
Coupon rate = (58.290/1000) × 100
= 5.8%
Coupon rate = 5.8%
