Bonner Metals wants to issue new 20-year bonds. The company currently has 8.5 percent bonds on the market that sell for $994, make semiannual payments, and mature in 7 years. What should the coupon rate be on the new bonds if the firm wants to sell them at par?

Coupon rate should be 8.6%

Explanation:

Yield to maturity is the annual rate of return that an investor receives if a bond bond is held until the maturity.

Face value = F = $1,000

Coupon payment = $1,000 x 8.5% / 2= $42.5

Selling price = P = $994

Number of payment = n = 14 years x 2 = 28 payment

Yield to maturity = [ 42.5 + ( $1,000 - 994 ) / 28 ] / [ ($1,000 + 994 ) / 2 ]

Yield to maturity = [ 42.5 + ( $1,000 - 994 ) / 28 ] / [ 1,994 ) / 2 ]

Yield to maturity = [ $42.5 + $0.21 ] / $997  = $42.71 /$997 = 0.043 = 4.3%

Yield to maturity = 4.3% x 2 = 8.6% per year

two years ago, when picking flowers in the mountains back of yosemite valley, i found a book. it was blotted and storm-beaten; all of its outer pages were mealy and crumbly. the paper seemed to dissolve like the snow beneath which it had been buried, however; many of the inner pages were well preserved. and although all were more or less stained and torn, whole chapters were easily readable. this is the condition of the great open book of yosemite glaciers today; its granite pages have been torn and blurred by the same storms that wasted the castaway book.

two years ago, when picking flowers in the mountains back of yosemite valley; i found a book. it was blotted and storm-beaten, all of its outer pages were mealy and crumbly. the paper seemed to dissolve like the snow beneath which it had been buried, however, many of the inner pages were well preserved. and although all were more or less stained and torn; whole chapters were easily readable. this is the condition of the great open book of yosemite glaciers today, its granite pages have been torn and blurred by the same storms that wasted the castaway book.