Question

Maxcorp’s bonds sell for $1,152.98. The bond life is 9 years, and the yield to maturity is 8.5%. What is the coupon rate on the bonds? (Assume a face value of $1,000 and annual coupon payments.) (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Answer 1

Bond present value = face value / (1+ yield)^{number of payments} + interest [1-(1+ yield)^{-number of payments}] / yield

$1,152.98 = 1000 / (1+0.085)⁹ + [1000 * interest] * [1 - (1+0.085)^-9] / 0.085

$1,152.98 = 1000 / (1.085)⁹ + [1000 * interest] * [1 - (1.085)^-9] / 0.085

$1,152.98 = 1000 / (1.085)⁹ + [1000 * interest] * [1 - 1 /(1.085)⁹] / 0.085

$1,152.98 = 1000 /2.08386 + [1000 * interest] * [1 - 1 /2.08386] / 0.085

$1,152.98 = 479.87869 + [1000 * interest] * 6.11907

$1,152.98 - 479.87869 = [1000 * interest] * 6.11907

673.10131 = [1000 * interest] * 6.11907

673.10131 / 6.11917 = [1000 * interest]

110 = 1000 * interest

interest = 11%