Gabriele Enterprises has bonds on the market making annual payments, with eleven

Question

Gabriele Enterprises has bonds on the market making annual payments, with eleven years to maturity, a par value of $1,000, and selling for $970. At this price, the bonds yield 7 percent.

What must the coupon rate be on the bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Gabriele Enterprises has bonds on the market making annual payments, with eleven years to maturity, a par value of $1,000, and selling for $970. At this price, the bonds yield 7 percent.

What must the coupon rate be on the bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Explanation / Answer

Bond price = coupon * (1- (1 + interest rate)^-n)/r + face value/(1 + interest rate)^n

970 = coupon * (1 - 1.07^-11)/.07 + 1000/(1.07)^11

while solving above equation we get

coupon = $66

thus coupon rate = 66/1000 = 6.6%

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