Question

Your company currently has $1,000 ​par, 6.5% coupon bonds with 10 years to maturity and a price of $1,078. If you want to issue new​ 10-year coupon bonds at​ par, what coupon rate do you need to​ set? Assume that for both​ bonds, the next coupon payment is due in exactly six months.

You need to set a coupon rate of _____%. (Round to two decimal places.)

Answer 1

Coupon Rate for the bond to be sold at par is the YTM.

To find the YTM, we need to put the following values in the financial calculator:

N = 10;

PV = -1078;

PMT = 6.5%*1000 = 65;

FV = 1000;

Press CPT, then I/Y, which gives us 5.47

So, YTM = 5.47%, which should be the coupon rate, if you want to issue this bond at bond.