Question

Seether Co. wants to issue new 13-year bonds for some much-needed expansion projects. The company currently has 10.4 percent coupon bonds on the market that sell for $1,000.00, make semiannual payments, and mature in 13 years. What coupon rate should the company set on its new bonds if it wants them to sell at par? Assume a par value of $1,000.

Answer 1

Since the par value and sale price is same, the YTM on the bond will be same. Hence coupon rate is 10.4%.

Verified as below:

NPER	26	[13*2]
FV	1000
PMT	52.00	[1000*10.4%*1/2]
PV	1000
Current yield	5.20%	[Rate ( nper, pmt,-pv,fv)]
YTM	10.40%	[5.2%*2]
NPER	26	[13*2]
FV	1000
PMT	52.00	[1000*10.4%*1/2]
PV	1000
Current yield	5.20%	[Rate ( nper, pmt,-pv,fv)]
YTM	10.40%	[5.003%*2]