Rhiannon Corporation has bonds on the market with 13.5 years to maturity, a YTM of 7.4 percent, a par value of $1,000, and a current price of $1,059. The bonds make semiannual payments. What must the coupon rate be on these bonds?

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Business

Paris Werner

Yesterday, 21:54

Rhiannon Corporation has bonds on the market with 13.5 years to maturity, a YTM of 7.4 percent, a par value of $1,000, and a current price of $1,059. The bonds make semiannual payments. What must the coupon rate be on these bonds?

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Answers (1)

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Brady Jordan · Answer 1

The answer is = 0.081 or 8.1%

Explanation:

The coupon rate is the periodic payment paid by an issuer to the bondholder (investor). This payment can be semiannual or annual.

N (Number of years) = 27 years (13.5x 2)

I/Y (Yield to Maturity) = 3.7% (7.4% : 2)

PV (Present Value) = $1,059

PMT (Payment) = ?

FV (Future value) = $1,000

Using Financial calculator:

The periodic payment is $40.49

$40.49 (semi annual)

Annual PMT is $40.49 x 2

=$80.98

Therefore, coupon rate is:

$80.98 : $1,000

=0.08098

=0.081 or 8.1%