Problem 6-7 Bond Prices and Returns (LO2)

One bond has a coupon rate of 7.2%, another a coupon rate of 8.6%. Both bonds pay interest annually, have 14-year maturities, and sell at a yield to maturity of 8.0%.

a. If their yields to maturity next year are still 8.0%, what is the rate of return on each bond? (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.)

	Bond 1		Bond 2
Rate of return		%		%

b. Does the higher-coupon bond give a higher rate of return over this period?

• Yes

• No

Problem 6-9 Coupon Rate (LO2)

General Matters outstanding bond issue has a coupon rate of 9.4%, and it sells at a yield to maturity of 7.80%. The firm wishes to issue additional bonds to the public. What coupon rate must the new bonds offer in order to sell at face value? (Enter your answer as a percent rounded to 2 decimal places.)

Coupon rate

%