Rhiannon Corporation has bonds on the market with 16.5 years to maturity, a YTM of 7.7 percent, a par value of $1,000, and a current price of $1,065. The bonds make semiannual payments. |
What must the coupon rate be on these bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
N = 16.5 Years * 2
= 33 Years
I = 7.7 % / 2
= 3.85%
Bond Price = Coupon Payment * PVIFA ( N, I) + Face Value * PVIF ( N, I)
$ 1065 = Coupon * PVIFA ( 33 ,3.85%) + 1,000 * PVIF ( 33, 3.85%)
1065 = Coupon * 18.5074 + 1000 * 0.2875
(1065- 287.5) / 18.5074 = Coupon
Coupon = 42.01022294
Semi Annual Coupon Rate = Coupon / Face Value * 100
=42.01022294 / 1000 * 100
= 4.20%
The calculate above is the semi annual coupon rate ,
Annual Coupon Rate = 4.20% * 2
= 8.40%
Hence the correct answer is 8.40%
Rhiannon Corporation has bonds on the market with 16.5 years to maturity, a YTM of 7.7...
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