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Rhiannon Corporation has bonds on the market with 17.5 years to maturity, a YTM of 6.4 percent, a par value of $1,000, and a current price of $1,037. The bonds make semiannual payments. What must the coupon
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33 votes
33 votes
Rhiannon Corporation has bonds on the market with 17.5 years to maturity, a YTM of 6.4 percent, a par value of $1,000, and a current price of $1,037. The bonds make semiannual payments. What must the coupon rate be on these bonds

User Makeasy
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1 Answer

23 votes
23 votes

Answer:

6.75%

Step-by-step explanation:

The calculation of the coupon rate is given below:

Given that

PV = $1,037

FV = $1,000

YTM = 6.4% ÷ 2 = 3.2%

NPER = 17.5 × 2 = 35

The formula should be

=PMT(RATE,NPER,-PV,FV,TYPE)

After applying the above formula, the pmt should be $33.77

Annual pmt is

= $33.77 × 2

= $67.55

Now the coupon rate is

= 67.55 ÷$1,000

= 6.75%

User ZerOne
by
3.2k points
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