McConnell Corporation has bonds on the market with 14.5 years to maturity, a YTM of 5.3 percent, a par value of $1,000, and a current price of $1,045. The bonds make semiannual payments. What must the coupon rate be on these bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.)

Question

Patricky

Business

15 October, 16:04

McConnell Corporation has bonds on the market with 14.5 years to maturity, a YTM of 5.3 percent, a par value of $1,000, and a current price of $1,045. The bonds make semiannual payments. What must the coupon rate be on these bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.)

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Answers (1)

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Lillianna Howell · Answer 1

5.75%

Explanation:

First, find the coupon payment amount. Using a financial calculator, key in the following inputs for this the bond valuation.

Note: Make adjustment on the rate and time since the coupon payments are made semi-annually i. e 2 times a year.

Maturity of the bond; N = 14.5*2 = 29

Semi-annual rate; I/Y = (5.3%/2) = 2.65%

Face value; FV = 1000

Price of the bond or PV = - 1045

then compute semiannual coupon payment; CPT PMT = $28.743

Annual coupon rate is therefore = $28.743*2 = $57.486

Coupon rate = coupon payment / face value

Coupon rate = $57.486 / 1000

= 0.05749 or 5.75%