XYZ Corp has bonds on the market with 7.5 years to maturity, a YTM of 6...

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XYZ Corp has bonds on the market with 7.5 years to maturity, a YTM of 6...

XYZ Corp has bonds on the market with 7.5 years to maturity, a YTM of 6 percent, and a current price of $1,000. The face value is $1,000. The bonds make semiannual payments. What must be the dollar coupons (dollar amount, not percentage) paid every six-months on XYZ’s bonds?

Hint: A YTM of 6% for a semiannual bond is a reporting convenience. It implies the actual 6 month return is 3%.

You need to use the annuity formula to solve this one.

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Answer 1

Answer #1

Current price of bond = Face value of bond,

Therefore, Coupon rate = Yield to maturity = 6% p.a.

Therefore semi-annual coupon payment = Face value x coupon rate x 6/12 = 1000 x 6% x 6/12 = $30

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