M Co. has bonds on the market making annual payments, with 11 years to maturity, and selling for...

Question:

M Co. has bonds on the market making annual payments, with 11 years to maturity, and selling for $963.00. At this price, the bonds yield 8%. What must the coupon rate be on M's bonds?

Answer and Explanation:

Bond Price is given as:

Here,

Bond Price = $963.00

M = Maturity amount = $1,000.00

n = Number of years to maturity = 11

i = Yield = 8% = 0.08

So,

Coupon = $74.82

Coupon rate = 74.82 / 1000 x 100 = 7.48%


Learn more about this topic:

Bond Valuation: Formula, Steps & Examples

from Finance 301: Corporate Finance

Chapter 7 / Lesson 6
26K

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