Question

Pera Inc. wishes to issue new bonds. These are 5-year bonds with semi-annual interest; $1,000 par value, and a yield to maturity of 10%. The firm has determined that these bonds would sell for $1,136 each today. What is the coupon rate for these bonds?

Answer 1

Answer:

coupon rate= 13.5%

Explanation:

Giving the following information:

Number of periods= 5*2= 10 semesters

Par value= $1,000

YTM= 0.1/2 = 0.05

Price bond= $1,136

To calculate the coupon rate, first, we need to determine the coupon per semester using the following formula:

Bond Price​= coupon*{[1 - (1+i)^-n] / i} + [face value/(1+i)^n]

1,136 = coupon*{[1 - (1.05^-10)] / 0.05} + [1,000/(1.05^10)]

1,136 = coupon*7.722 + 613.91

522.09 = coupon*7.722

$67.61=coupon

Now, the coupon rate:

Coupon= par value*(coupon rate/2)

67.61= 1,000*(coupon rate/2)

67.61= 500coupon rate

0.135=coupon rate

coupon rate= 13.5%