Question

McConnell Corporation has bonds on the market with 14.5 years to maturity, a YTM of 5.3 percent, a par value of $1,000, and a current price of $1,045. The bonds make semiannual payments. What must the coupon rate be on these bonds

Answer 1

Answer:

5.75%

Explanation:

In order to find out the coupon rate , first we have to determine the PMT which is shown in the attached spreadsheet

Given that,  

Present value = $1,045

Future value = $1,000

Rate of interest = 5.3% ÷ 2 = 2.65%

Time = 14.5 years × 2 = 29 years

The formula is shown below:

= PMT(Rate;NPER;-PV;FV;type)

The present value come in negative

So, after solving this, the pmt is

= $28.74 × 2

= $57.48

Now the coupon rate is

= $57.48 ÷ $1,000

= 5.75%