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Hagelin Co. wants to issue new 16-year bonds for some much-needed expansion projects. The company currently...

Hagelin Co. wants to issue new 16-year bonds for some much-needed expansion projects. The company currently has 7 percent coupon bonds on the market that sell for $1,035, make semiannual payments, and mature in 16 years. Both bonds have a par value of $1,000. What coupon rate should the company set on its new bonds if it wants them to sell at par?

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Answer #1

Calculate the YTM as follows:

Semiannual rate = 3.32076%

Annual rate is 3.32075%*2 =6.64%.

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Bond can be sold at par, if YTM is equal to coupon rate.

Therefore, coupon rate for new bonds is 6.64%.

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