Question

McConnell Corporation has bonds on the market with 17 years to maturity, a YTM of 7.4 percent, a par value of $1,000, and a current price of $1,276.50. The bonds make semiannual payments. What must the coupon rate be on these bonds? (Use financial calculator if possible to solve)

Answer 1

Vlaue of Bond =

r is the rate of compounding 7.4% / 2 = 3.7%

n is the no of compounding i.e. 17 yeas * 2 = 34

1276.50 =

1276.50 = Coupon * 19.1688726124 + 290.751717334

Coupon = (1276.50 - 290.751717334) / 19.1688726124

Coupon = 51.42

Coupon for a year = 51.42 * 2 = $ 102.84

Coupon % = 102.84 / 1000 = 10.28%

1- (1+r) Coupon * - + MaturityValue (1+r)

1 Coupon * - (1+0.037)54 0.037 1000 (1 + 0.037)34