Pembroke Co. wants to issue new 16-year bonds for some much-needed expansion pro

Question

Pembroke Co. wants to issue new 16-year bonds for some much-needed expansion projects. The company currently has 10 percent coupon bonds on the market that sell for $1,075, make semiannual payments, and mature in 16 years.

What coupon rate should the company set on its new bonds if it wants them to sell at par? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

%  

You buy a zero coupon bond at the beginning of the year that has a face value of $1,000, a YTM of 6 percent, and 18 years to maturity. You hold the bond for the entire year.

How much interest income will you have to declare on your tax return? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

$   

Pembroke Co. wants to issue new 16-year bonds for some much-needed expansion projects. The company currently has 10 percent coupon bonds on the market that sell for $1,075, make semiannual payments, and mature in 16 years.

Explanation / Answer

Based on image:

a) Coupon rate = 6.625%

b) Bid price = 134:16

c) Dollar bid price = 1000 * (134 + 16/32)%

= $1345

d) Previous day ask price = 134:17 + 0:8 = 137:25

Previous day dollar ask price = 1000 * (134 + 25/32)%

= 1347.8125

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