Question

BDJ Co. wants to issue new 19-year bonds for some much-needed expansion projects. The company currently has 10.3 percent coupon bonds on the market that sell for $1,143, make semiannual payments, have a $1,000 par value, and mature in 19 years.

What coupon rate should the company set on its new bonds if it wants them to sell at par?

Answer 1

Find the YTM on current bonds

Use financial calculator

FV= $1000

PV= $1143

N= 19*2= 38

PMT = 0.103 * 1,000 * 0.5 == 51.5

Compute I= 4.37%*2= 8.74%

If the company wants to sell the new bonds on par it should set the coupon rate as 8.74% because when ytm and coupon rate are the same the bond sells on par.

Step-by-step explanation: