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Ashes Divide Corporation has bonds on the market with 15 years to maturity, a YTM of...

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Finance

Ashes Divide Corporation has bonds on the market with 15 yearsto maturity, a YTM of 12.0 percent, and a current price of$1,176.50. The bonds make semiannual payments. What must the couponrate be on these bonds? (Do not round your intermediatecalculations.)

Answer & Explanation Solved by verified expert
4.2 Ratings (686 Votes)

Information provided:

Par value= future value= $1,000

Current price= present value= $1,176.50

Time= 15 years*2= 30 semi-annual periods

Yield to maturity= 12%/2= 6% per semi-annual period

The coupon rate is computed by first calculating the coupon payment.

Enter the below in a financial calculator to compute the coupon payment:

FV= 1,000

PV= -1,176.50

N= 30

I/Y= 6

The value obtained is 72.82.

Therefore, the amount of coupon payment= 72.82*2= $145.64.

Coupon rate= Coupon payment/ Par value

                        = $145.64/ $1,000

                        = 0.1456*100

                        = 14.56%.

In case of any query, kindly comment on the solution.
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Transcribed Image Text

Ashes Divide Corporation has bonds on the market with 15 yearsto maturity, a YTM of 12.0 percent, and a current price of$1,176.50. The bonds make semiannual payments. What must the couponrate be on these bonds? (Do not round your intermediatecalculations.)

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