Question

Exxon has existing bonds on the market making annual payments they have a maturity horizon of 9 years the current selling price of exxon is $948 at this price the bond yield 5.90% what must the coupon rate be on the exxon bonds?

Answer #1

Par Value = $1,000

Current Price = $948

Annual YTM = 5.90%

Time to Maturity = 9 years

Let annual coupon be $C

$948 = $C * PVIFA(5.90%, 9) + $1,000 * PVIF(5.90%, 9)

$948 = $C * (1 - (1/1.0590)^9) / 0.0590 + $1,000 / 1.0590^9

$948 = $C * 6.83139 + $596.9478

$C * 6.83139 = $351.0522

$C = $51.39

Annual Coupon = $51.39

Annual Coupon Rate = $51.39 / $1,000

Annual Coupon Rate = 0.05139

Annual Coupon Rate = 5.139% or 5.14%

So, coupon rate on the Exxon bonds is 5.14%

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selling for $948. At this price, the bonds yield 5.9 percent. What
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selling for $880. At this price, the bonds yield 11 percent. What
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Gabriele Enterprises has bonds on the market making annual
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Multiple Choice
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(show work if you can :) )

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calculations and enter your answer as a percent rounded to 2
decimal places, e.g., 32.16.)

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