Question

Sykora Corp. sells $540,000 of bonds to private investors. The bonds are due in 5 years, have a 6% coupon rate and interest is paid semiannually. Sykora received $490,222 for the bonds at issuance. The effective rate on these bonds is:

Answer 1

The effective rate on these bonds is 7.17%

What is the effective rate?

The effective interest rate of a bond is the rate that equates the present value of the bond's future interest payments and the bond's maturity value to the bond's current market value.

The effective interest rate can be determined using a financial calculator:

• Cash flow in year 0 = -490,222
• Cash flow from period 1 - 12 = 6% x 540,000 = 32,400
• Cash flow in year 6 or period 12 = $540,000

effective interest rate = 7.17%

To learn more about effective interest rate, please check: brainly.com/question/13735414

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