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19 June, 04:37

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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  1. 19 June, 04:44
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    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.
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