Please help me to get the right answers for these two questins by using the Yhan
ID: 2748650 • Letter: P
Question
Please help me to get the right answers for these two questins by using the Yhanoo Finance Web.
Can you show me step by step? I need the right answers by Thursday afternoon.
Air Jet Best Parts, Inc. would like issue 20- years’ bonds to obtain remaining funds for the New Mexico plan. The company currently has 7.5% semiannually coupon bonds in the market that sell for $1,062 and mature in 20 years.
What coupon rate should Air Jet Best Parts set on its new bonds to sell them at par value?
What is the difference between the coupon rate and the YTM of bonds?
Explanation / Answer
Answer : Copun rate of New bonds
Current coupan rate = 1000*7.5% = $ 75
Market Price of bonds = $ 1062
Expected return = 75/1062 = 7.062%
If Company issue Bond at par i.e. Bond rate $ 1000, Coupan rate would be
=1000*7.062% = $ 70.62 p.a. or 70.62/2 = $ 35.3 per coupan semi annually
Answer - 2 Difference between coupan rate and YTM (yeild to maturity) of bonds
1. ) Coupan Rate is the actual amount of interest income earned on the bond while YTM is estimated rate of return based on the assumption it is held until maturity date and not called.
2.) Yeild to maturity (YTM) inculde the coupan rate in its calculation.
3.) Investor take decision of investment on the basis of YTM than its coupan rate.