Barnes Enterprises has bonds on the market making annual payments, with 14 years to maturity, a par value of $1,000, and a price
of $958. At this price, the bonds yield 8.9 percent. What must the coupon rate be on the bonds
1 answer:
Answer:
8.36%
Explanation:
To find out the coupon rate, first we have to determine the PMT which is shown in the attachment below:
Given that,
Present value = $958
Future value = $1,000
Rate of interest = 8.9%
NPER = 14 years
The formula is shown below:
= PMT(Rate;NPER;-PV;FV;type)
The present value come in negative
So, after solving this, the yearly payment is $83.64
Now the coupon rate is
= $83.64 ÷ $1,000
= 8.36%
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Answer:
$441,495
Explanation:
Since the information is incomplete, I looked for the missing part and found the attached information.
the current yield of a 1.5 years zero coupon bond = (100 / 89.9)¹/¹°⁵ - 1 = 0.0736 = 7.36%
the current yield of a 6 months zero coupon bond = (100 / 97.087)¹/⁰°⁵ - 1 = 0.0609 = 6.09%
now to calculate the future interest rate:
(1.0736²/1.0609) - 1 = 0.0865 = 8.65%
since we are told to determine the price of the bond:
(100/P)¹/¹°⁵ - 1 = 0.0865
(100/P)¹/¹°⁵ = 1.0865
100/P = 1.0865¹°⁵
100/P = 1.1325
100/1.1325 = P
P = 88.299
the expected price of the bond = 88.299% x $500,000 = $441,495
