Question

goldstream enterprises has bonds on the market making annual payments with 9 years to maturity and selling for 948. at this price the bonds yield 5.9%, what must the coupon rate be on bonds?

Answer 1

Price of Bond is PV of Cfs from it.

Let X be the Annual Coupon Amount

Year	CF	PVF @5.9%	Disc CF
1	X	0.9443	0.9442X
2	X	0.8917	0.8916X
3	X	0.8420	0.8420X
4	X	0.7951	0.7950X
5	X	0.7508	0.7507X
6	X	0.7090	0.7089X
7	X	0.6695	0.6694X
8	X	0.6322	0.6321X
9	X	0.5969	0.5969X
9	1000	0.5969	596.95
Bond Price			6.8314X + 596.95

Thus 6.8314X + 596.95 = 948

6.8314X = 948 - 596.95

= 351.05

X = 351.05 / 6.8314

= 51.39

Coupon Rate = Coupon Amount / Par Value

= $ 51.39 / $ 1000

= 0.0514 i.e 5.14%