Question

Sykora Corp. sells $450,000 of bonds to private investors. The bonds are due in 5 years, have a 6% coupon rate and interest is paid semiannually. Sykora received $490,222 for the bonds at issuance. The effective rate on these bonds is:
(A) 6%
(B) 9%
(C) 4%
(D) 10%
(E) None of the above

Answer 1

Answer:

(B) 9%

Explanation:

In order to calculate this you just have to do a simple rule of three with the 100% being the 450,000 you withdraw from the paid money the selling price of the bonds:

490,222-450000= 40,222

Now we do the rule of three using 450,000 as 100%:

$\frac{450,000}{100}=\frac{40,222}{x} \\x=\frac{40,222*100}{450,000}\\ x=8,93 %$

So the actual rate would be 8,93 which is closest to 9% so that would be the answer.