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Hello my question is how did they receive 40 as PMT what order of operation was used to get 40$? This is the question: Suppose

Hello my question is how did they receive 40 as PMT what order of operation was used to get 40$?

This is the question:

Suppose a ten year bond with semiannual coupons has a price of $1,071.06 and a yield to

maturity of 7%. This bond's coupon rate is closest to:

How do they get 40 as payments

A) 3.5%

B) 6.0%

C) 7.0%

D) 8.0%

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Answer

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C ) 8.0 %

Semiannual rate = 7% / 2 = 3.5%

Nper = 10 years x 2 = 20

FV = $1,000

PV = $1,071.06

PMT =PMT(rate,nper,-pv,fv)

=PMT(3.5%,20,-1071.06,1000)

= $40.

Annual coupon payment = $40 x 2 = $80.

Coupon rate = (Annual coupon payment / Face value) x 100

= ($80 / $1,000) x 100

= 8.0%

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