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2 March, 13:51

Volbeat Corporation has bonds on the market with 10.5 years to maturity, a YTM of 6.2 percent, a par value of $1,000, and a current price of $945. The bonds make semiannual payments. What must the coupon rate be on the bonds?

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  1. 2 March, 13:53
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    The answer is 5.47 percent

    Explanation:

    Firstly, we find coupon payment (PMT).

    it can be gotten from the price (present value) of bond formula:

    PV = PMT / (1+r) ^1 + PMT / (1+r) ^2 ... PMT + FV / (1+r) ^n

    N = 10.5 years

    1/Y = 6.2 percent

    PV = $945

    PMT = ?

    FV = $1000

    Using a Financial calculator to input all the variables above,

    Annual PMT = $54.72

    Semi annual will be $54.72/2 = $27.36

    Coupon rate is Annual PMT / par value

    = $54.72/1000

    0.0547 or 5.47 percent
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