O'Brien Ltd.'s outstanding bonds have a $1,000 par value, and they mature in 25 years. Their nominal yield to maturity is 9.25%,

Question

3 years ago

11

O'Brien Ltd.'s outstanding bonds have a $1,000 par value, and they mature in 25 years. Their nominal yield to maturity is 9.25%,

they pay interest semiannually, and they sell at a price of $975. What is the bond's nominal coupon interest rate? Group of answer choices 8.12% 7.32% 8.99% 7.71% 8.54%

Business

1 answer:

kozerog [31] · Answer 1 · 2022-02-13T07:41:07+03:00

Answer:

8.99%

Explanation:

For this question we use the PMT function that is presented on the excel spreadsheet. Kindly find it below:

Given that,

Present value = $975

Future value = $1,000

Rate of interest = 9.25% ÷ 2 = 4.625%

NPER = 25 years × 2 = 50 years

The formula is shown below:

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

The present value come in negative

So, after solving this, the PMT is $44.96

Now the annual PMT is

= $44.96 × 2

= $89.92

So, the coupon interest rate is

= $89.92 ÷ $1,000

= 8.99%