Question

Big Canyon Enterprises has bonds on the market making annual payments, with 12 years to maturity, a par value of $1,000, and a price of $1,030. At this price, the bonds yield 6.14 percent. What must the coupon rate be on the bonds? (

Answer 1

The coupon rate on the bonds must be 6.319%.

Step-by-step explanation:

In order to calculate the coupon rate on the bonds, we need to find the annual interest payment. We know that the bonds have a par value of $1,000 and a price of $1,030. The yield on the bonds is given as 6.14%.

We can calculate the annual interest payment as follows:

Interest Payment = Yield * Price = 0.0614 * $1,030 = $63.19

Therefore, the coupon rate on the bonds must be $63.19/$1,000 = 6.319%