Question

Kaiser Industries has bonds on the market making annual payments, with 12 years to maturity, a par value of $1,000, and a current price of $1,142.60. At this price, the bonds yield 7.2 percent. What is the coupon rate

Answer 1

Step-by-step explanation:

Current price = Annual coupon*Present value of annuity factor(7.2%,12)+$1000*Present value of discounting factor(7.2%,12)

1142.60=Annual coupon*7.85871162+$1000*0.434172763

1142.60=Annual coupon*7.85871162+434.172763

Annual coupon=(1142.60-434.172763)/7.85871162

Annual coupon = $90.14

Coupon rate=Annual coupon/Face value

=$90.14/$1000

=9.01%