Question

Your company currently has

$1,000

​par,

5 %

coupon bonds with 10 years to maturity and a price of

$1,083.

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

Face value = $1000

Coupon = 5%

Coupon($) = 25 (semi annual)

Years = 10

No of periods = 20 (semi-annual coupon payments)

Price = $1083

We can calculate the YTM in excel,

Face value	1000
Coupon rate	5%
Coupon (semi-annual)	25
Years	10
Number of periods	20
Price	1083
YTM(Semi annual)	1.99%	(=RATE(20,-25,1083,-1000))
YTM(Annual)	3.99%

Hence Coupon rate = 4.00%(approx)

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