Question

Whitts BBQ would like to issue some 10-year, semiannual coupon bonds at par. Comparable bonds have a current yield of 9.16 percent, an effective annual yield of 9.68 percent, and a yield to maturity of 9.50 percent. What coupon rate should Whitts BBQ set on its bonds?

Answer 1

Answer:

9.50%

Explanation:

There are the conditions in which the bond will sold at par, premium or even discount

When the bond will sold at par the yield to maturity and the coupon rate is equal plus the present value of the bond is equal to the face value of the bond

When the bond will sold at premium, the coupon rate is higher than yield to maturity

And, if the bond will sold at discount, the coupon rate is less than the yield to maturity

Since in the given situation, the companies wants to sell its bond at par i.e means the yield to maturity should be equal to the coupon rate i.e 9.50%