Coccia Co. wants to issue new 20-year bonds for some much-needed expansion projects. The company currently has 8 percent coupon
bonds on the market that sell for $1,075, make semiannual payments, and mature in 20 years. What coupon rate should the company set on its new bonds if it wants them to sell at par?
1 answer:
Answer:
7.28%
Explanation:
For this question we use the RATE formula that is shown in the attachment below:
Provided that
Present value = $1,075
Assuming figure - Future value or Face value = $1,000
PMT = 1,000 × 8% ÷ 2 = $40
NPER = 20 years × 2 = 40 years
The formula is shown below:
= Rate(NPER;PMT;-PV;FV;type)
The present value come in negative
So, after solving this, the coupon rate is
= 3.64% × 2
= 7.28%
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