BDJ Co. wants to issue new 18-year bonds for some much-needed expansion projects
ID: 2721214 • Letter: B
Question
BDJ Co. wants to issue new 18-year bonds for some much-needed expansion projects. The company currently has 8.9 percent coupon bonds on the market that sell for $1,129, make semiannual payments, and mature in 18 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).)
Required: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).)
Explanation / Answer
The currentyield to maturity on existing bond is 7.56%, if the coupon rate is equal to yield the the bond will sell at par value.Fv 10, Pv 1129, coupon 89, N 18.
So the company can set the coupon rate to 7.56% for new bonds.
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