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14 September, 10:46

Kaiser Industries has bonds on the market making annual payments, with 12 years to maturity, a par value of $1,000, and a current price of $1,142.60. At this price, the bonds yield 7.2 percent. What is the coupon rate

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  1. 14 September, 11:44
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    Current price = Annual coupon*Present value of annuity factor (7.2%,12) + $1000*Present value of discounting factor (7.2%,12)

    1142.60=Annual coupon*7.85871162+$1000*0.434172763

    1142.60=Annual coupon*7.85871162+434.172763

    Annual coupon = (1142.60-434.172763) / 7.85871162

    Annual coupon = $90.14

    Coupon rate=Annual coupon/Face value

    =$90.14/$1000

    =9.01%
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