Question

Ashes Divide Corporation has bonds on the market with 18 years to maturity, a YTM of 6.6 percent, and a current price of $1,156.50. The bonds make semiannual payments. What must the coupon rate be on these bonds

Answer 1

Coupon Rate = 8.1%

Step-by-step explanation:

Given:

Nper = 18 x 2 = 36 semiannual

Rate = 6.6% / 2 = 3.3% semiannual

Future Value = $1,000

Present Value = $1,156.50

Find:

Coupon rate

Computation:

Annual Interest Payment = PMT(Rate,Nper,PV,FV)2

Annual Interest Payment =PMT(3.3%,36,-1156.50,1000)2

Annual Interest Payment = $80.98 = $81 (Approx)

Coupon Rate = [Annual Interest Payment / Face Value]100

Coupon Rate = [81/1000]100

Coupon Rate = 8.1%