Question

Ervin’s Enterprises has bonds on the market making annual payments, with 13 years to maturity, a par value of $1,000, and selling for $880. At this price, the bonds yield 10 percent. What must the coupon rate be on the bonds?

Multiple Choice

• 10.0%

• 8.86%

• 8.31%

• 9.22%

• 7.78%

Answer 1

8.31%

Working:

Step-1:Calculation of coupon payment
	Coupon payment		=	=pmt(rate,nper,-pv,fv)
			=	$        83.11
	Where,
	pmt	Coupon payment		?
	rate	Yield to maturity		10%
	nper	number of period		13
	pv	Current Value		$     880.00
	fv	Par Value		$ 1,000.00
Step-2:Calculation of coupon rate
	Coupon rate		=	Coupon Payment/ Par Value
			=	$        83.11	/	$ 1,000.00
			=	8.31%