Question

Angsana Corporation has bonds on the market with 13.5 years to maturity, a YTM of 8 percent, and a current price of $1,065.32. The bonds make semiannual payments. The coupon rate on these bonds must be ____________percent. (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16))

Answer 1

Bond price = $1065.32

YTM= 8%

coupon are semiannual

So, semi annual YTM or i= 4.00%

years= 13.5

no. of semiannual periods (n)= 13.5*2= 27

Bond price formula = Coupon amount * (1 - (1/(1+i)^n)/i + face value/(1+i)^n

So, 1065.32 = C*(1-(1/(1+4%)^27/4% + 1000/(1+4%)^27

1065.32=. C* 16.32958575 +346.8165701

1065.32 - 346.8165701= C* 16.32958575

C= 44.00010147

So, semiannual coupon amount = $44

Semi-annual Coupon rate = 44/1000= 4.40%

annual coupon rate = 4.4%*2 = 8.80%

So, coupon rate on Bonds must be 8.80%

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