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A 20-year XXX bond has a coupon rate of 8 percent and sells at a yield...

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Finance

A 20-year XXX bond has a coupon rate of 8 percent and sells at ayield to maturity of 10 percent.

1. Assuming annual coupon payments, at what price does the bondsell?

2. If XXX wants to issue a new 20-year bond at face value, whatcoupon rate must the bond offer?

Answer & Explanation Solved by verified expert
3.8 Ratings (617 Votes)

Par/Face value 1000
Annual Coupon rate 0.08
Annual coupon 80
Present Value = Future value/ ((1+r)^t)
where r is the interest rate that is 10% and t is the time period in years.
price of the bond = sum of present values of future cash flows
r 0.1
t 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
future cash flow 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 1080
present value 72.72727 66.1157 60.10518 54.64108 49.67371 45.15791 41.05265 37.32059 33.92781 30.84346 28.03951 25.49047 23.17315 21.0665 19.15136 17.41033 15.82757 14.3887 13.08064 160.5351
sum of present values 829.73
1) The bond sells at $829.73.
2) If the company wants to issue new 20 year bonds at face value, then the coupon rate
must equal the yield to maturity.
In other words, the coupon rate should equal 10%.

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A 20-year XXX bond has a coupon rate of 8 percent and sells at ayield to maturity of 10 percent.1. Assuming annual coupon payments, at what price does the bondsell?2. If XXX wants to issue a new 20-year bond at face value, whatcoupon rate must the bond offer?

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