Treasury bonds paying an 8% 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?

• 8%
• 8.04%
• 8.08%
• 8.12%
• 8.16%

References

Lo, Andrew W.; Wang, Jiang. "MIT Sloan Finance Problems and Solutions Collection Finance Theory I" (PDF). alo.mit.edu. Retrieved November 30, 2023.

Solution: E

The effective annual yield on the semi-annual coupon bonds is 8.16%. If the annual coupon bonds are to sell at par, they must offer the same yield, which will require an annual coupon of 8.16%.

References

Lo, Andrew W.; Wang, Jiang. "MIT Sloan Finance Problems and Solutions Collection Finance Theory I" (PDF). alo.mit.edu. Retrieved November 30, 2023.