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Treasury bonds paying an 9.25% coupon rate with semiannual payments currently sell at par value. What...

Treasury bonds paying an 9.25% 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.)

Coupon Rate: ___%

Answer is not 9.35

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Answer #1

In order to sell at par, coupon rate must be equal to YTM. Now, for a semi-annual bond, which is selling at par, coupon rate = 9.25%. We need to compute effective annual rate for this semi-annual bond.

EAR . 1 i =stated annual interest rate number f compounding periods

EAR = (1 + \frac{0.0925}{2})^2 - 1

EAR = 1.0946 - 1

EAR = 0.0946

EAR = 9.46% --> Coupon rate for annual bond

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