ABC Inc. has bonds on the market with 15 years to maturity, a YTM of 7%...

ABC Inc. has bonds on the market with 15 years to maturity, a YTM of 7% and a current price of $950. The bond makes semiannual payments. What must the coupon rate be on these bonds?

Expert Solution

Bond price =C*[1-(1+YTM)^-n / YTM] + [P/(1+YTM)^n]

Where,
C= Coupon amount
YTM = Yield To maturity =7%/ 2 =3.5%
n = Number of periods =15*2=30
P= Par value

$950=C * [1 - (1 + 0.035)^-30 / 0.035] + [1000 / (1 + 0.035) ^30]
950 =C*20.007 +356.278
C*20.007 =950-356.278
C =32.2814

Semi-annual coupon amount = 32.2814

Coupoun rate = 32.2814/1000*12/6
=6.46%

Correct Answer = 6.46%

jeff jeffy answered 2 years ago

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