In: Finance
Ashes Divide Corporation has bonds on the market with 15 years to maturity, a YTM of 12.0 percent, and a current price of $1,176.50. The bonds make semiannual payments. What must the coupon rate be on these bonds? (Do not round your intermediate calculations.) |
Information provided:
Par value= future value= $1,000
Current price= present value= $1,176.50
Time= 15 years*2= 30 semi-annual periods
Yield to maturity= 12%/2= 6% per semi-annual period
The coupon rate is computed by first calculating the coupon payment.
Enter the below in a financial calculator to compute the coupon payment:
FV= 1,000
PV= -1,176.50
N= 30
I/Y= 6
The value obtained is 72.82.
Therefore, the amount of coupon payment= 72.82*2= $145.64.
Coupon rate= Coupon payment/ Par value
= $145.64/ $1,000
= 0.1456*100
= 14.56%.
In case of any query, kindly comment on the solution.