Gabriele Enterprises has bonds on the market making annualpayments, with 15 years to maturity, a...

Gabriele Enterprises has bonds on the market making annual payments, with 15 years to maturity, a par value of $1,000, and selling for $840. At this price, the bonds yield 8.1 percent. What must the coupon rate be on the bonds? Multiple Choice • 6.32% • 8.10% • 12.44% • 7.40% • 6.22%

Solutions

Expert Solution

Value of Bond =

Where r is the discounting rate of a compounding period i.e. 8.1%

And n is the no of Compounding periods 15 years

Coupon ?

840 =

840 = Coupon * 8.50746159604 + 310.89561072

Coupon = 840 - 310.89561072 / 8.50746159604

Coupon = 62.20

Coupon Rate = 62.20 / 1000

Coupon Rate = 6.22%

Option 5 is correct.

jeff jeffy answered 2 years ago

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