Gabriele Enterprises has bonds on the market making annual payments, with nine years to maturity, a par value of $1,000, and sel

Question

4 years ago

6

ling for $954. At this price, the bonds yield 6.2 percent. What must the coupon rate be on the bonds

1 answer:

Ulleksa [173] · Answer 1 · 2022-01-10T04:24:49+03:00

Answer:

5.52%

Explanation:

For computing the coupon rate we first have to determine the PMT by applying the PMT formula

Given that,

Present value = $954

Future value = $1,000

Rate of interest = 6.2%

NPER = 9 years

The formula is shown below:

= PMT(Rate;NPER;-PV;FV;type)

The present value come in negative

So, after solving this, the monthly payment is $55.18

Now the coupon rate is

= $55.18 ÷ $1,000

= 5.52%