Question

Volbeat Corporation has bonds on the market with 12.5 years to maturity, a YTM of 9.8 percent, a par value of $1,000, and a current price of $949. The bonds make semiannual payments. 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.) Coupon rate_______%

Answer 1

Answer:

9.08%

Explanation:

For computing the coupon rate  first we have to determine the monthly payment by applying the PMT formula which is to be shown in the attachment

Given that

Present value = 949

Future value or Face value = $1,000  

RATE = 9.8% ÷ 2 = $4.90

NPER = 12.5 years × 2 = 25 years

The formula is shown below:  

= PMT(RATE;NPER;-PV;FV;type)  

The present value come in negative  

So, after applying the above formula, the monthly payment is $45.42

Now the coupon rate is

= ($45.42 × 2) ÷ $1,000

= 9.08%