Question

​ Cold Boxes Corporation has 100 bonds outstanding with a maturity value of $1,000. The required rate of return on these bonds is currently 10 percent, and interest is paid semiannually. The bonds mature in 5 years, and their current market value is $768 per bond. The annual coupon interest rate is: (Round the answer to the nearest whole number.)

Answer 1

Answer:

The annual coupon interest rate is 4%.

Explanation:

Bond Price = C *[1 - [1/(1 + i)^n]]/i + M/(1 + i)n

Bond Price = $768

n = number of periods

   = 5*2

   = 10 periods

C = ?

i = interest rate

 = 0.05

M = Face value

   = $1,000

768 = C*[1 - {1/(1 + 0.05)^10/0.05 +$ 1,000/(1 + 0.05)^10

768 = C*[1 - (1/1.05)^10/0.05 + $1,000/(1.05)^10

768 - 613.91 = 7.72173C

C = 154.08675 /7.7213

   = 19.95494

Annual = 19.95*2

            = $40

Coupon rate = 40/$1,000

                     = 4%

Therefore, The annual coupon interest rate is 4%.