General Matter's outstanding bond issue has a coupon rate of 10%, and it sells at a yield to maturity of 9.25%. The firm wishes to issue additional bonds to the public at face value. What coupon rate must the new bonds offer in order to sell at face value? (Enter your answer as a percent rounded to 2 decimal places.)

Question

Business

Esther Barr

10 March, 10:58

General Matter's outstanding bond issue has a coupon rate of 10%, and it sells at a yield to maturity of 9.25%. The firm wishes to issue additional bonds to the public at face value. What coupon rate must the new bonds offer in order to sell at face value? (Enter your answer as a percent rounded to 2 decimal places.)

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Answers (1)

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Mathias Sullivan · Answer 1

9.25%

Explanation:

One quick rule of thumb is that for a bond to issued at par value the coupon rate must equal the yield to maturity, in other words, in order for General Matter to issue the new bond at face value, the coupon rate must be equal to 9.25%, the same as the yield to maturity.

The above can be verified below:

If the coupon rate is 9.25%, then the coupon interest would be $92.5 (9.25%*$1000)

the rate is 9.25%

face value is $1000

the pv which is the current price is not known

nper is the length of time the bond would be issued for is also not known hence it taken as zero

the price of the bond=-pv (9.2%,0,92.5,1000) = $1000

price of the bond=par value=$1000