Seether Co. wants to issue new 17-year bonds for some much-needed expansion proj
ID: 2617777 • Letter: S
Question
Seether Co. wants to issue new 17-year bonds for some much-needed expansion projects. The company currently has 8.8 percent coupon bonds on the market that sell for $845.79, make semiannual payments, and mature in 17 years. What coupon rate should the company set on its new bonds if it wants them to sell at par?
Seether Co. wants to issue new 17-year bonds for some much-needed expansion projects. The company currently has 8.8 percent coupon bonds on the market that sell for $845.79, make semiannual payments, and mature in 17 years. What coupon rate should the company set on its new bonds if it wants them to sell at par?
Explanation / Answer
use financial calculator to find the yield to maturity which will be equal to the new bond's coupon rate to make it bond at par value
PV=-845.79
FV=1000
N=17*2=34 semi annual periods
PMT=1000*8.8%/2=44
Click CPT
Click I/Y=5.40% per semi annual period
yield to maturity is=5.40%*2=10.80% is answer
The above should be the answer..