Question

# Blue Co. issued 30-year bonds twelve years ago which are currently trading at \$1,187 and have...

Blue Co. issued 30-year bonds twelve years ago which are currently trading at \$1,187 and have a face value of \$1,000. An investor’s required rate of return on similar debt is 8.5% and the coupon payments are paid semiannually. What is the original issue coupon rate for this bond?

Face Value = \$1000

Current Price = \$ 1187

No of years left to maturity = 18 years

Required Return on Similar Debt = 8.5%

Calculating the Coupon Price of the Bond: n = 18*2 = 36

Semi-annual YTM = 8.5%/2 =4.25%  \$1187 = Coupon payment(18.2708) + \$ 223.49

\$ 963.51 = Coupon payment(18.2708)

Coupon payment = \$ 52.735

So, Annual Coupon payment = \$52.73*2 = 105.47

Issue Coupon rate = \$105.47/\$1000 = 10.547%

So, original issue coupon rate for this bond is 10.55%

If you like my answer, then please up-vote as it will be motivating

#### Earn Coins

Coins can be redeemed for fabulous gifts.