Question 2 Brookline, Inc. just sold an issue of 30-year bonds for $1,107.20. Investors require a...

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Question

Question 2 Brookline, Inc. just sold an issue of 30-year bonds for $1,107.20. Investors require a rate of return on these bon

Answer 1

Answer #1

Brookline, Inc

Given : The required return from market =YTM =7.75%

Par value assumed as $1000

Market Price =$1107.2

Years to maturity=30 years

Assume annual coupon amount is x

Formula of YTM

YTM = [Annual interest +(Face value-Current price)/n]/(Face value + Current Price*2)/3

7.75% =[x+(1000-1107.2)/30]/(1000 +2*1107.2)/3

x=86.01

So annual Coupon Amount is $86.61

The annual coupon rate is 86.61/1000=8.66%

Required Coupon rate is 8.66% APR

Answer 2

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