At Westonci.ca, we connect you with experts who provide detailed answers to your most pressing questions. Start exploring now! Experience the convenience of finding accurate answers to your questions from knowledgeable professionals on our platform. Our platform offers a seamless experience for finding reliable answers from a network of knowledgeable professionals.
Sagot :
In order to sell the new bonds at par, the coupon rate must be 5.51%.
What are bonds?
- A bond is a sort of financial asset in which the issuer (the debtor) owes the holder (the creditor) a debt and is obligated to repay the principal (i.e. amount borrowed) of the bond at the maturity date as well as interest (called the coupon) over a specified period of time, depending on the terms.
To find the coupon rate in order to sell the new bonds at par:
- The company now possesses $1,000 par, 6.5 percent coupon bonds with a maturity date of 10 years and a price of $1,078.
- If we intend to issue fresh 10-year coupon bonds at par, assume that the next coupon payment is due in exactly six months for both bonds.
- We must compute the current bonds' yield to maturity (YTM).
- Because the bonds pay interest every six months, the coupon is $32.50.
- YTM = {coupon + [(face value - market value)/n]}/[(face value + market value)/2]
- YTM = {32.5 + [(1,000 - 1,078)/20]}/[(1,000 + 1,078)/2]
- YTM = 28.6 / 1,039 = 0.275 x 2 = 5.5053% ≈ 5.51%
Therefore, in order to sell the new bonds at par, the coupon rate must be 5.51%.
Know more about bonds here:
https://brainly.com/question/25965295
#SPJ4
Thank you for trusting us with your questions. We're here to help you find accurate answers quickly and efficiently. We hope this was helpful. Please come back whenever you need more information or answers to your queries. Thank you for visiting Westonci.ca, your go-to source for reliable answers. Come back soon for more expert insights.
