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?

Question

Business

Samara Mclean

31 July, 00:59

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?

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Answers (1)

Know the Answer?

Lucia Drake · 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.