The appropriate coupon, time period, and discount rate that needs to be used to correctly value this bond will be as follows:
Coupon= $30 per period.
20 period for semi annual coupon payment.
28.148% discount rate
1.) Coupon rate * face value of bond = coupon
semi annual rate =6%/2=3%
Coupon= 1000 *3%= $30 per period.
2.) t= number of periods = years of maturity * coupon payment semi-annual
t= 10 * 2 = 20 periods.
3. Discount rate formula =C+[(F-P)/t] / (F+P/2)
where C=coupon payment annual
F= face value of security
P=price of security= 1000 *8%=80
t= years of maturity.
so we have⇒ 60+[(1000-80)/10]/(1000+80)/2
=152/540
=28.148%
The yield to maturity, which is the rate of return an investor would receive if they reinvested each bond's coupon payment at a fixed interest rate until the bond matures, is used as the discount rate. It considers a bond's price, par value, coupon rate, and maturity date.
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