Kaiser Industries has bonds on the market making annual payments, with 14 years to maturity, a par value of $1,000, and a current price of $1,108.60. At this price, the bonds yield 7.5 percent. What is the coupon rate? Select one: a. 9.01 percent b. 8.46 percent c. 8.78 percent d. 9.32 percent e. 8.93 percent

Question

Layton Bradshaw

Business

18 April, 16:46

Kaiser Industries has bonds on the market making annual payments, with 14 years to maturity, a par value of $1,000, and a current price of $1,108.60. At this price, the bonds yield 7.5 percent. What is the coupon rate? Select one: a. 9.01 percent b. 8.46 percent c. 8.78 percent d. 9.32 percent e. 8.93 percent

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Answers (1)

Know the Answer?

Adalyn · Answer 1

c.) 8.78 percent

Explanation:

You can solve this question using a financial calculator. I am using (Texas Instruments BA II plus)

Note: If using the same calculator as me, key in the numbers first before the function.

Total duration of investment; N = 14

YTM; I/Y = 7.5%

Face value or Par value; FV = 1000

Current Price; PV = - 1108.6

then CPT PMT = $87.793

Coupon payment = $87.793

Coupon rate = (Coupon payment / Par value) * 100

Coupon rate = (87.793/1000) * 100

=0.08779 * 100

= 8.779%

Therefore, the coupon rate = 8.78%