Large Industries bonds sell for $1,022.38. The bond life is 12 years, and the yi

Question

Large Industries bonds sell for $1,022.38. The bond life is 12 years, and the yield to maturity is 8.2%. What must be the coupon rate on the bonds? Assume coupons are paid once a year and the face value is $1,000. (Do not round intermediate calculations. Enter your response as a percentage rounded to one decimal place.)

Please show work.

Large Industries bonds sell for $1,022.38. The bond life is 12 years, and the yield to maturity is 8.2%. What must be the coupon rate on the bonds? Assume coupons are paid once a year and the face value is $1,000. (Do not round intermediate calculations. Enter your response as a percentage rounded to one decimal place.)

Please show work.

Explanation / Answer

YTM = [C + (F - P)/n] / [(F+P)/2]

0.082 = [C + (1,000 - 1,022.38)/12] / [(1,022.38+1,000)/2]

0.082 x 1,011.19 x 12 = 12C - 22.38

C = 84.78

Coupon rate = 84.78*100/1,000 = 8.48 or 8.5%

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