7 Homework Question 7 (of 11) value: 10.00 points DMA Corporation has bonds on t

Question

7 Homework Question 7 (of 11) value: 10.00 points DMA Corporation has bonds on the market with 19.5 years to maturity, a YTM of 6.6 percent, and a current price of $1,043. The bonds make semiannual payments and have a par value of $1,000. What must the coupon rate be on these bonds? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Coupon rate References eBook&Resources; Worksheet Learning Objective: 07-02 Bond values and yields and why they fluctuate. Difficulty: Basic Section: 7.1 Bonds and Bond Valuation Check my work

Explanation / Answer

n=19.5*2=39 years

ytm (hal year)= 6.6/2=3.3%

current price=1043

par value=1000

using discounted casflow method

1043= coupon *PVIAF(19.5*2,3.3)+1000/(1+0.033)^(19.5*2)

PVIAF= (1-(1+3.3%)^-39)/3.3%= 21.76

1043=coupon *21.76+ 281.89

coupon = 34.98

that is x% * 1000=34.98

x=3.498%(semiannual)= 3.5%

or annual coupon rate=6.996% =7%

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