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Determination of coupon rate of bond

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Determination of coupon rate of bond

  • This topic has 1 reply, 2 voices, and was last updated 5 years ago by John Moffat.
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  • November 25, 2019 at 11:45 am #553685
    ishmero2006
    Participant
    • Topics: 9
    • Replies: 5
    • ☆

    In an answer to determining the coupon rate of a $10, 000 bond to be redeemed at par after three years, the following equation was given:
    PV=$100xc%A+$10000×V
    Where c% – coupon rate
    A – annuity for 3yrs at given cost of capital
    V – present value factor for 3yrs at cost of capital.
    My question is shouldn’t the expression $100x c% rather be $10,000 x c% since that is the cash flow that we have to discount and not just $100xc%?

    November 25, 2019 at 3:06 pm #553718
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    Yes it should. As you have typed it, they should use 10,000 throughout.

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