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BartSMP [9]
3 years ago
7

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?

Business
1 answer:
Gre4nikov [31]3 years ago
6 0

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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See explanation section

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solution

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