BDJ Co. wants to issue new 18-year bonds for some much-needed expansion projects. The company currently has 9.4 percent coupon bonds on the market that sell for $1,134, make semiannual payments, and mature in 18 years. Required: What coupon rate should the company set on its new bonds if it wants them to sell at par? (Do not round intermediate calculations. Round your answer to 2 decimal places (e. g., 32.16).)

Question

Howard Harris

Business

23 September, 23:04

BDJ Co. wants to issue new 18-year bonds for some much-needed expansion projects. The company currently has 9.4 percent coupon bonds on the market that sell for $1,134, make semiannual payments, and mature in 18 years. Required: What coupon rate should the company set on its new bonds if it wants them to sell at par? (Do not round intermediate calculations. Round your answer to 2 decimal places (e. g., 32.16).)

+5

Answers (1)

Know the Answer?

Rachel Mccormick · Answer 1

The company should set a coupon rate of 7.79% on its new bonds if it wants them to sell at par.

Explanation:

face value = 1000

year = 18

current price = 1134

coupon value = 94

coupon rate = [ (18*2 + 94/2) / (1000 + 1134) ]*2

= 7.79%

Therefore, The company should set a coupon rate of 7.79% on its new bonds if it wants them to sell at par.