Question

Big Canyon Enterprises has bonds on the market making annual payments, with 16 years to maturity, a par value of $1,000, and a price of $957. At this price, the bonds yield 9 percent. What must the coupon rate be on the bonds

Answer 1

8.48%

Step-by-step explanation:

Calculation to determine What must the coupon rate be on the bonds

First step is to find the coupon rate of the bond.

Coupon payment = $957 = C(PVIFA9.0%,16) + $1,000(PVIF9.0%,16)

Solving for the coupon payment will give us C= $84.83

Now let calculate the coupon rate using this formula

Coupon rate= Coupon payment/ Par value

Let plug in the formula

Coupon rate = $84.83 / $1,000

Coupon rate = .0848*100

Coupon rate =8.48%

Therefore the coupon rate on the bonds is 8.48%