Question

Rhiannon Corporation has bonds on the market with 13.5 years to maturity, a YTM of 7.4 percent, a par value of $1,000, and a current price of $1,059. The bonds make semiannual payments. What must the coupon rate be on these bonds?

Answer 1

The answer is =0.081 or 8.1%

Step-by-step explanation:

The coupon rate is the periodic payment paid by an issuer to the bondholder (investor). This payment can be semiannual or annual.

N(Number of years)= 27 years (13.5x 2)

I/Y(Yield to Maturity) =3.7%(7.4% ÷ 2)

PV(Present Value) = $1,059

PMT(Payment) = ?

FV(Future value) = $1,000

Using Financial calculator:

The periodic payment is $40.49

$40.49(semi annual)

Annual PMT is $40.49 x 2

=$80.98

Therefore, coupon rate is:

$80.98 ÷ $1,000

=0.08098

=0.081 or 8.1%