Answer:
Annual coupon rate should be: 6.88%
Explanation:
* Yield to maturity (YTM) in semiannual format calculation:
+ Semi annual coupon payment = 1,000 x 8% /2 = $40;
+ The YTM is the discount rate that brings the present value of coupon streams and face value repayment from the bond equals to its current price. So, we have:
1,080 = [ (40/YTM) x ( 1 - (1+YTM)^(-20) ] + 1,000/(1+YTM)^20 <=> YTM = 3.44%
* Coupon rate calculation:
If the company wants to sell at par ( meaning they wants to gets $1,000), the coupon rate should be equal to the YTM, which is calculated above at 3.44% semiannual.
=> Annual coupon rate = 3.44% x 2 = 6.88%.
So, the answer is 6.88%.
