Question

annual payments, with 14 years to maturity, a par value of $1,000, and selling for $780. At this price, the bonds yield 6.2 percent. What must the coupon rate be on the bonds?

Answer 1

3.80%

Step-by-step explanation:

For computing the coupon rate on the bonds, first we have to determine the PMT that is shown in the attachment

Given that,

Present value = $780

Future value = $1,000

Rate of interest = 6.2%

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 PMT is $38.04

Now the coupon rate is

= $38.04 ÷ $1,000

= 3.80%