Market Enterprises would like to issue bonds and needs to determine the approximate rate they would need to pay investors. A firm with similar risk recently issued bonds with the following current features: a 5% coupon rate, 10 years until maturity, and a current price of $1,150. At what rate would Market Enterprises expect to issue their bonds, assuming annual interest payments? (Solve this problem using either Excel's "Goal Seek" function or a financial calculator.)
A)3.2%
B)5.9%
C)5%
D)4.8%

Question

Quizplus · Accepted Answer

The correct answer is A because the yield to maturity (YTM) for the similar firm's bonds is 3.2%. This means that Market Enterprises would need to offer a similar YTM in order to attract investors.

Market Enterprises Would Like to Issue Bonds and Needs to Determine