Question

McConnell Corporation has bonds on the market with 23.5 years to maturity, a YTM of 7 percent, a par value of $1,000, and a current price of $1,051. The bonds make semiannual payments. What must the coupon rate be on these bonds?

Answer 1

$6,500

Step-by-step explanation:

outstanding common stock 40,000

outstanding preferred stock 13,000 stocks of 5%, $10

preferred stock dividends per year = 13,000 x 5% x $10 = $6,500

The company only paid $4,000 in dividends during 2019, but since the preferred stocks are non-cumulative, the remaining $2,500 will not be paid in 2020.

dividends paid during 2020 = $6,500

If the preferred stocks were cumulative, then the company would have paid $6,500 + $2,500 = $9,000 in 2020