Gabriele Enterprises has bonds on the market making annual payments, with nine years to maturity, a par value of $1,000, and selling for $800

Finance Mar 13, 2021

Gabriele Enterprises has bonds on the market making annual payments, with nine years to maturity, a par value of $1,000, and selling for $800. At this price, the bonds yield 7.5 percent. What must the coupon rate be on the bonds?

Expert Solution

We can calculate the coupon payment by using the following formula in excel:-

=pmt(rate,nper,-pv,fv)

Here,

Pmt = Coupon payments

Rate = 7.5%

Nper = 9 periods

PV = $800

FV = $1,000

Substituting the values in formula:

= pmt(7.5%,9,-800,1000)

= $43.65

Coupon rate = Annual coupon payment / Par value

= $43.5 / $1,000

= 4.36%

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