Question

Chamberlain Co. Wants to issue new 18 year bonds for some much-needed expansion projects. The company currently has 6% coupon Barnes on the market that sell for $1055, big semi annual payments, immature and 18 years. What coupon rate sure the company set and it’s new bonds if it wants him to sell at par?

Answer 1

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =18x2

1055 =∑ [(6*1000/200)/(1 + YTM/200)^k]     +   1000/(1 + YTM/200)^18x2

k=1

YTM% = 5.51

issue new bonds with coupon rate = YTM = 5.51% to price bond at par value