Your company currently has $1,000 par, 5.25% coupon bonds with 10 years to maturity and a price of $1,087. 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....%
Because the coupon payment is due in six months, the payment frequency is semi-annually.
To find the coupon rate to be set we first need to find the yield on the current bond.
For the current bond:
N(Number of periods) = 10*2 = 20
PV = -$1,087
FV = $1000
PMT = 1000 * 5.25%/2 = $26.25
Using the RATE function in excel:
Yield = 0.021 * 2 = 4.2%
Because the new 10-year coupon bonds are to be issued at par, the coupon rate should be equal to the yield. Because the yield is 4.2%, the coupon rate should be 4.2%
Your company currently has $1,000 par, 5.25% coupon bonds with 10 years to maturity and a...
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Q 17 Your company currently has $1,000 par, 6.75% coupon bonds with 10 years to maturity and a price of $1,069. 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 %
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Your company currently has $1000 par, 5.5% coupon bonds with 10 years to maturity and a price of $1,078. 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. (Round to two decimal places.)
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