McConnell Corporation has bonds on the market with 18 years to maturity, a YTM of 9.8 percent, a par value of $1,000, and a curr
ent price of $1,326.50. The bonds make semiannual payments. What must the coupon rate be on these bonds
1 answer:
Answer:
13.70%
Explanation:
We use the PMT formula which is to be shown in the attachment
Given that,
Present value = $1,326.50
Future value = $1,000
Rate of interest = 9.8% ÷ 2 = 4.9%
NPER = 18 years × 2 = 36 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
= $68.48 × 2
= $136.92
Now the coupon rate is
= $136.92 ÷ $1,000
= 13.70%
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