question archive Gabriele Enterprises has bonds on the market making annual payments, with eleven years to maturity, a par value of $1,000, and selling for $970
Gabriele Enterprises has bonds on the market making annual payments, with eleven years to maturity, a par value of $1,000, and selling for $970
Subject:FinancePrice:2.87 Bought7
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Gabriele Enterprises has bonds on the market making annual payments, with eleven years to maturity, a par value of $1,000, and selling for $970. At this price, the bonds yield 7 percent. |
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What must the coupon rate be on the bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
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Answer:
Bond price = coupon * (1- (1 + interest rate)^-n)/r + face value/(1 + interest rate)^n
970 = coupon * (1 - 1.07^-11)/.07 + 1000/(1.07)^11
while solving above equation we get
coupon = $66
thus coupon rate = 66/1000 = 6.6%
