Question 1 (of 10 10.00 points Problem 6-8 Coupon Rates [LO 21 Volbeat Corporati

Question

Question 1 (of 10 10.00 points Problem 6-8 Coupon Rates [LO 21 Volbeat Corporation has bonds on the market with 16 years to maturity, a YTM af 10.5 percent, a par vaiue of $1.000, and a current price of $943. The bonds make semiannual payment 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 References eBook & Resources Worksheet Difficulty: 1 Basic Section: 6.1 Bonds and Bond Valuation Learning Objective: 0602 Describe bond values and why they fluctuate Problem 68 Coupon Rates [Lzj 0

Explanation / Answer

COUPON RATE = 9.76 %

Workings

Par Value = $ 1000

Market Rate = 10.50%

Market Price = $ 943

N = 16 years x 2 = 32 Years

Coupon Rate Formula

Coupon Rate = 2[ (Market Price - Par Value x PVIF(ytm%, n) ) / ( Par Value x PVIFA(ytm%, n) ) ]

PVIFA(5.25%, 32) = 15.3431

PVIF(5.25%, 32) = 0.1945

Coupon Rate Calculation

Coupon Rate = 2[ (943 - 1000 x 0.1945 ) / ( 1000 x 15.3431 ) ]

Coupon Rate = 2[ 943 – 194.50 ] / 15343.10

Coupon Rate = 2[ 748.50 / 15343.10 ]

Coupon Rate = 2[0.0488]

Coupon Rate = 9.76 %

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