Your company currently has $ 1 comma 000 par, 5.25 % coupon bonds with 10 years to maturity and a price of $ 1 comma 071. If you want to issue new 10-year coupon bonds at par, what coupon rate do you need to set? Assume that for both bonds, the next coupon payment is due in exactly six months. You need to set a coupon rate of nothing%. (Round to two decimal places.)
Since the next coupon payment is in 6 months, its a semi annual bond
Coupon = (0.0525 * 1000) / 2 = 26.25
Number of periods = 10 * 2 = 20
Yield to maturity = 4.37%
Keys to use in a financial calculator: 2nd I/Y 2, FV 1000, PMT 26.25, N 20, PV -1,071, CPT I/Y
If the company wants to issue new bonds at par, coupon ate should be equal to yield to maturity
Therefore, company should set coupon rate as 4.37%
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