Baxter Co. wants to issue new 18-year bonds for some much-needed expansion projects. The company currently has 6 percent coupon

Question

2 years ago

13

Baxter Co. wants to issue new 18-year bonds for some much-needed expansion projects. The company currently has 6 percent coupon

bonds on the market that sell for $1,055, make semiannual payments, and mature in 18 years. Both bonds have a par value of $1,000. What coupon rate should the company set on its new bonds if it wants them to sell at par

Business

1 answer:

lesya [120] · Answer 1 · 2022-09-04T22:28:15+03:00

Answer:

5.52%

Explanation:

The coupon rate is given below:

Given that

Future value = $1,000

Present value = $1,055

NPEr = 18 × 2 = 36

PMT = $1,000 × 6% ÷ 2 = $30

The formula is shown below:

=RATE(NPER;PMT;-PV;FV;TYPE)

The present value comes in negative

After applying the above formula, the rate is

= 2.76% × 2

= 5.52%