Suppose Southwest Airlines issued 100,000 USD of 9%, 5-year bonds when the market interest rate is 10%. The market price of the bonds drops, and Southwest receives $96,149.
First of all, in my textbook only term market interest rate is used, but if I understood it correctly it is also called effective interest rate , right? In this problem(stated above) the market interest rate is given. But many problems given to us by our teacher is without market interest rate - so what we have is - for example corporation A issued bonds at discount (nominal interest rate is less than market interest rate) - I am left with coupon interest rate, amount of money raised, and maturity date. So using the problem above I would only know that I have 5 years bonds, bonds $100,000, money received 96,149 USD, coupon interest rate 9%. So finally my question - how would I compute market interest rate from the information given?( I hope what I am asking is clear, the reason i switch between using USD and dollar sign is that dollar sign gives me formatting problems).