Garrett Company's outstanding bonds have a $1,000 par value, and they mature in 25 years. Their...

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Answer 1

Answer #1

As a first step, we need to figure out the annual payment on the coupon bond. The same can calculated using the PMT function of excel. Inputs are:

Hence, annual payment = PMT (Rate, Nper, PV, FV) = PMT (7%, 25, -875, 1000) = $ 59.27

Annual payment = Bond's nominal coupon interest rate x Par value

Hence, 59.27 = Bond's nominal coupon interest rate x 1,000

Hence, Bond's nominal coupon interest rate = 59.27 / 1000 = 5.93%

Please enter your answer as 5.93

Answer 2

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