Question

Lei Corporation has bonds on the market with 22.5 years to maturity, a YTM of 6.9 percent, a par value of $1,000, and a current price of $1,057. The bonds make semiannual payments. What must the coupon rate be on these bonds

Answer 1

7.4%

Step-by-step explanation:

Coupon rate=coupon payment/face value

The coupon payment can be ascertained using the pmt Excel function as stated below:

=pmt(rate,nper,-pv,fv)

rate is the yield to maturity expressed in semiannual terms i.e 6.9%*6/12=3.45%

nper is the number of semiannual coupons the bond would pay over its 22.5 years i.e 22.5*2=45 payments

pv is the current price of $1057

fv is the face value of $1000

=pmt(3.45%,45,-1057,1000)=$37(semiannual coupon)

annual coupon=$37*2=$74

coupon rate=$74/$1000=7.4%