Coupon rate problem
What must the coupon rate of the new bonds ?
On January 1, 2002, HomeSafe Cab Co. will issue new bonds to finance its expansion plans. Currently outstanding 8%, January 1, 2017 HomeSafe bonds are selling for $1,091.96. If interest is paid semiannually for both bonds, what must the coupon rate of the new bonds be in order for the issue to sell at par?
Given that semiannually the coupon is paid to the bond holders.
Coupon Rate: 8% annually
Coupon paid semiannually = $ 40
Present Value of Bond: $ 1091.96
Par Value of Bond: $ 1000
Now the bond is selling at premium because the present value is higher than the par value of the bond.
Now the Equation becomes
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