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? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =17

969 =∑ [(Coupon rate*1000/100)/(1 + 8.1/100)^k]     +   1000/(1 + 8.1/100)^17

k=1

Coupon rate% = 7.76