Big Canyon Enterprises has bonds on the market making annual payments, with 17 years to maturity, a par value of $1,000, and a price of $969. At this price, the bonds yield 8.1 percent. 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.)

Question

Business

Wayne Guerra

9 October, 05:31

Big Canyon Enterprises has bonds on the market making annual payments, with 17 years to maturity, a par value of $1,000, and a price of $969. At this price, the bonds yield 8.1 percent. 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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Answers (1)

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Nigel Castro · Answer 1

Coupon rate = 3.8%

Explanation:

we know that:

r = YTM = [C + (F-P) / n] / (F+P) / 2

where r = bond yield rate = 8.1% =.081

F = Face valye of bond = $1000

P = Price of bond = $ 969

n = number of periods to maturity = 17 years

C = coupon payment = ?

Solution:

0.081 = C + [ (1000-969) / 17 ] / (1000+969) / 2

0.081 = (C + 1.8235) / 492.25

0.081 * 492.25 = C + 1.8235

39.872 = C + 1.8235

39.872-1.8235 = C

C = 38.04 (coupon payment).

we know that:

Coupon rate = annualized interest (coupon) / par value of bond

= 38.04 / 1000

= 3.8%