Big Canyon Enterprises has bonds on the market making annual payments, with 17 years to maturity, a par value of $1,000, and a p
rice of $969. At this price, the bonds yield 8.1 percent. What must the coupon rate be on the bonds?
1 answer:
Answer:
7.8%
Explanation:
For computing the coupon rate first we have to determine the PMT by using the PMT formula which is shown in the attachment below:
Given that,
Present value = $969
Future value or Face value = $1,000
RATE =8.1%
NPER = 17 years
The formula is shown below:
= PMT(RATE;NPER;-PV;FV;type)
The present value come in negative
So, after applying the above formula, the PMT is $77.58
Now the coupon rate is
= $77.58 ÷ $1,000
= 7.8%
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