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?
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 investors are willing to pay $1,150 for a bond that will pay them $50 in interest each year for 10 years and $1,000 at maturity. The YTM is the annual rate of return that investors will earn on their investment.

Market Enterprises Would Like to Issue Bonds and Needs to Determine