Answer:
The next coupon rate that is needed to set is 5.00%
Explanation:
Solution
Recall that:
Your company presently has =$1,000 par
Coupon bonds = 6%
Maturity = 10 years
The next step is to find the coupon rate that is needed or required to set.
Now,
The number of semi annuals to maturity, NPER = (10 YEARS * 2)= 20
Semiannual coupon payments, PMT = ($1000 * 6%/2) = $30
The current selling price per bond (FV) = $1078
The maturity value at the end is = $1000
The semiannual compound type, = 0 (It is 0 if compounded at the end of each semiannual and is 1 if compounded at the start of each semiannual)
Semi annual interest rate is = 2.5%
Thus,
The number of semi annuals in a year is = 2
The annual coupon rate of bonds (new) = 2/50 % * 2
= 5.00%
It is important to note that the semi annual coupon rate is computed suing the excel function rate (nper, pmt, pv, fv, type),
Whereby
PV =1078
NPR = 20
PMT =30
FV = 1000
TYPE = 0.
