Question

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?

Answer 1

7.8%

Step-by-step explanation:

For computing the coupon rate first we have to determine the PMT by using the PMT formula which is shown in the attachment below:

Given that,

Present value = $969

Future value or Face value = $1,000

RATE =8.1%

NPER = 17 years

The formula is shown below:

= PMT(RATE;NPER;-PV;FV;type)

The present value come in negative

So, after applying the above formula, the PMT is $77.58

Now the coupon rate is

= $77.58 ÷ $1,000

= 7.8%