Coccia Co. wants to issue new 15-year bonds for some much-needed expansion proje

Question

Coccia Co. wants to issue new 15-year bonds for some much-needed expansion projects. The company currently has 7 percent coupon bonds on the market that sell for $1,060, make semiannual payments, and mature in 15 years.

What coupon rate should the company set on its new bonds if it wants them to sell at par? (Round your answer to 2 decimal places. (e.g., 32.16))

Coccia Co. wants to issue new 15-year bonds for some much-needed expansion projects. The company currently has 7 percent coupon bonds on the market that sell for $1,060, make semiannual payments, and mature in 15 years.

Explanation / Answer

Hi,

Please find the answer as follows:

You need to calculate the YTM to arrive at the answer.

Nper = 15*2 = 30 (indicates the period over which interest payments are made)

PMT = 1000*7%*1/2 = 35

PV = -1060 (indicates the present value of bonds)

FV = 1000 (indicates the face value)

Rate = ? (indicates YTM)

YTM = Rate(Nper,PMT,PV,FV)*2 = Rate(30,35,-1060,1000)*2 = 6.37%

Answer is 6.37%.

Thanks.

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