A business wants to raise $1.2 million by selling some coupon bonds at par. Comp

Question

1. A business wants to raise $1.2 million by selling some coupon bonds at par. Comparable bonds in the market have a 6.5 percent annual coupon, 15 years to maturity, and are selling at 97.687 percent of par. What coupon rate should be set on its bonds? 6.25 percent 6.38 percent 6.50 percent 6.67 percent 6.75 percent

A business wants to raise $1.2 million by selling some coupon bonds at par. Comparable bonds in the market have a 6.5 percent annual coupon, 15 years to maturity, and are selling at 97.687 percent of par. What coupon rate should be set on its bonds? 6.25 percent 6.38 percent 6.50 percent 6.67 percent 6.75 percent A business wants to raise $1.2 million by selling some coupon bonds at par. Comparable bonds in the market have a 6.5 percent annual coupon, 15 years to maturity, and are selling at 97.687 percent of par. What coupon rate should be set on its bonds? 6.25 percent 6.38 percent 6.50 percent 6.67 percent 6.75 percent 6.25 percent 6.38 percent 6.50 percent 6.67 percent 6.75 percent

Explanation / Answer

for par value bonds, coupon rate = yield to maturity

Let yield to maturity be r

97.687%*1000 = 65/(1+r) + 65/(1+r)^2 + 65/(1+r)^3 ......1065/(1+r)^15

r= 6.75%

coupon rate = yield to maturity = 6.75%

6.75 percent

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