Osbourne Corporation has bonds on the market with 11.5 years to maturity, a YTM

Question

Osbourne Corporation has bonds on the market with 11.5 years to maturity, a YTM of 9.6 percent, and a current price of $947. The bonds make semiannual payments. Required: What must the coupon rate be on the bonds? (Do not include the percent sign (%). Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Round your answer to 2 decimal places

Explanation / Answer

here par value =$1000 as current price $947 which is nearer to 1000( usually bonds are issued for $100 , $1000 etc..,) so let coupon be x , n= 11.5*2 = 23 ,r= 9.6%/2 =4.8%(semi annual) => 947 = x/(1.048) + x/(1.048)^2+-----+x/(1.048)^23 +1000/(1.048)^23 => x= 44.144 so annual coupon = 44.144*2 = 88.288 so coupon rate = 88.288/1000 =8.8288% so coupon rate = 8.23%(appx)

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