BDJ Co. wants to issue new 25-year bonds for some much-needed expansion projects
ID: 2649997 • Letter: B
Question
BDJ Co. wants to issue new 25-year bonds for some much-needed expansion projects. The company currently has 7.8 percent coupon bonds on the market that sell for $1,125, make semiannual payments, and mature in 25 years.
What coupon rate should the company set on its new bonds if it wants them to sell at par? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
BDJ Co. wants to issue new 25-year bonds for some much-needed expansion projects. The company currently has 7.8 percent coupon bonds on the market that sell for $1,125, make semiannual payments, and mature in 25 years.
Explanation / Answer
In TVM solver on financial calculator:
N = 25* 2 = 50
PV = -1125
PMT = (0.078*1000)/2 =39
FV = 1000
I = 3.38% x 2 (because it is semi-annual) = 6.76%
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