Question

Bonner Metals wants to issue new 18-year bonds for some much-needed expansion projects. The company has bonds with an 11 percent coupon rate on the market that sell for $1,459.51. The bonds make semiannual payments, and mature in 18 years. What should the coupon rate be on the new bonds if the firm wants to sell them at par?

Answer 1

6.60%

Step-by-step explanation:

We use the RATE formula that is shown in the attachment

Given that,

Present value = $=1,459.51

Assuming figure - Future value or Face value = $1,000

PMT = 1,000 × 11% ÷ 2 = $55

NPER = 18 years × 2 = 36 years

The formula is shown below:

= Rate(NPER;PMT;-PV;FV;type)

The present value come in negative

So, after solving this, the coupon rate is

= 3.30% × 2

= 6.60%