Davis & Davis issued $1,000 par value bonds at 102.The bonds pay 12% interest annually and mature in 30 years.The market rate of interest is (round to the nearest hundredth of a percent):

Question

Quizplus · Accepted Answer

To calculate the market rate of interest, we need to use the formula for bond pricing: 
Bond Price = (Coupon Payment / Market Rate) x [1 - (1 / (1 + Market Rate)^n)] + (Face Value / (1 + Market Rate)^n)
Where: 
Coupon Payment = 12% of $1,000 = $120
Market Rate = unknown
n = 30 years
Face Value = $1,000
Bond Price = $1,020 (since the bonds were issued at 102% of face value)
We can now use trial and error or a financial calculator to find the market rate that makes the bond price equal to $1,020. 
Using trial and error, we find that a market rate of 11.76% makes the bond price roughly equal to $1,020. 
Therefore, the answer is B: 11.76%.

Davis & Davis Issued $1,000 Par Value Bonds at 102