Question

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.)

Answer 1

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =10x2

1078 =∑ [(5.5*1000/200)/(1 + YTM/200)^k]     +   1000/(1 + YTM/200)^10x2

k=1

YTM% = 4.52 = coupon rate to set to price bond at par