Question

Barnes Enterprises has bonds on the market making annual payments, with 14 years to maturity, a par value of $1,000, and a price of $958. At this price, the bonds yield 8.9 percent. What must the coupon rate be on the bonds

Answer 1

Answer:

8.36%

Explanation:

To find out the coupon rate, first we have to determine the PMT which is shown in the attachment below:

Given that,  

Present value = $958

Future value = $1,000

Rate of interest = 8.9%

NPER = 14 years

The formula is shown below:

= PMT(Rate;NPER;-PV;FV;type)

The present value come in negative

So, after solving this, the yearly payment is $83.64

Now the coupon rate is

= $83.64 ÷ $1,000

= 8.36%