Question

BDJ Co. wants to issue new 19-year bonds for some much-needed expansion projects. The company currently has 10.3 percent coupon bonds on the market that sell for $1,143, make semiannual payments, have a par value of $1,000, and mature in 19 years. What coupon rate should the company set on its new bonds if it wants them to sell at pa

Answer 1

Answer:

The coupon rate is 10.3%

Explanation:

The interest to set on the bond in order to sell them at par can be computed using rate formula in excel:

=rate(nper,pmt,pv,fv)

nper is the number of times the bond would pay interest over its time to maturity which is 19*2=38

pmt is the interest payment semi-annually at $1000*10.3%/2=$51.5

pv is the price of the bond which is the par value of $1000

fv is the value at redemption which is also $1000

=rate(38,51.5,-1000,1000)

rate=5.15%

this is the semi-annual rate ,the yearly yield to maturity is 5.15%*2=10.30%

When a bond sells at par the yield to maturity is the same as the coupon rate