Answer: 8.40%
Explanation:
Based on the information given, to solve the coupon rate goes thus using a financial calculator. This will be:
Par value = $1000
NPER = 16.5 × 2 = 33
Present value = $1065
Yield to maturity = 7.7%/2 = 3.85%
Coupon payment = $42.01
Coupon rate = Coupon payment / 1000
= 42.01 / 1000
= 0.04201
Annual coupon rate = Coupon rate × 2 = 4.20 × 2 = 8.40%
Therefore, the coupon rate on the bond will be 8.40%
Note that the NPER is the period for the investment. In this case, the NPER is 33 because it makes semiannual payment which means that we will multiply the years given by 2.