Question #51313

Buttercup Inc. just issued RM1,000 par 30-year bonds. Each bond was sold for

RM1,107.20 and pay interest semiannually. Investors require a rate of 7.75% on the

bonds. What is the bonds' coupon rate?

RM1,107.20 and pay interest semiannually. Investors require a rate of 7.75% on the

bonds. What is the bonds' coupon rate?

Expert's answer

RM1,000 par 30-year bonds. Each bond was sold for RM1,107.20 and pay interest semiannually. Required rate of return 7.75%.

A coupon payment on a bond is a periodic interest payment that the

bondholder receives during the time between when the bond is issued and

when it matures.

For bonds:

P = F*if((1 - (1 + i)^-n)/i) + M(1 + i)^-n

where:

C = F * iF = coupon payment

N = number of payments

i = market interest rate, or required yield, M = face value

P = market price of bond.

The bonds' coupon rate if = (P - M(1 + i)^-n)/(F*((1 - (1 + i)^-n)/i)) =

(1107.2 - 1000/1.0775^30)/(1000*((1 - 1/1.0775^30)/0.0775)) = 8.68%.

A coupon payment on a bond is a periodic interest payment that the

bondholder receives during the time between when the bond is issued and

when it matures.

For bonds:

P = F*if((1 - (1 + i)^-n)/i) + M(1 + i)^-n

where:

C = F * iF = coupon payment

N = number of payments

i = market interest rate, or required yield, M = face value

P = market price of bond.

The bonds' coupon rate if = (P - M(1 + i)^-n)/(F*((1 - (1 + i)^-n)/i)) =

(1107.2 - 1000/1.0775^30)/(1000*((1 - 1/1.0775^30)/0.0775)) = 8.68%.

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