Answer:
6.94%.
Explanation:
The number of coupons payments given is semi annual, the annual will be
= 18.5 years to maturity * 2
= 37 payments.
Annual Yield to Maturity = 6.50 % / 2
= 3.25 %
For coupon payments we use formula:
Bond Price = (Par value / 1 + r^t) + C (1 - 1 / 1 +r^t) / r
$1,048 = ($1,000 / 1.0325^37) + C (1 - 1/ 1.0325^37) / 0.0325
$1,048 = $306.24 + C $21.35
$21.35 * C = $1,048 - $306.24
Coupon Payment C = $741.75 / $21.35
C = $34.74
C = $34.74 * 2 = $69.48
coupon rate = $69.48 / $1,000
Coupon rate= 6.94%.
