Rhiannon Corporation has bonds on the market with 13.5 years to maturity, a YTM of 7.40...
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Rhiannon Corporation has bonds on the market with 13.5 years to maturity, a YTM of 7.40 percent, and a current price of $1,059. The bonds make semiannual payments. |
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What must the coupon rate be on these bonds? |
Homework Answers
Number of periods = 13.5 * 2 = 27
Rate = 7.40% / 2 = 3.7%
Price = Semi annual coupon * [1 - 1 / (1 + r)n]/ r + FV / (1 + r)n
1059 = Semi annual coupon * [1 - 1 / (1 + 0.037)27]/ 0.037 + 1000 / (1 + 0.037)27
1059 = Semi annual coupon * [1 - 0.37495] / 0.037 + 374.95019
1059 = Semi annual coupon * 16.893243 + 374.95019
Semi annual coupon = 40.4925
annual coupon = 40.4925 * 2 = 80.985
Coupon rate = (80.985 / 1000) * 100
Coupon rate = 8.10%
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