Corporate Bonds

Question

If your company were looking to issue a new 12 year corporate bond at face value, what coupon rate

would you place on it if a similar bond in the market were priced at $1250 and

has a 6.5% coupon rate assuming a semiannual payment ?

Answer 1

The PV of a similar bond pays a semi annual coupon of $32.5. We get 24 coupons of 32.5 and a principal repayment of $1,000. We want to find the yield to maturity. If you have a bond calculator you will find the yield to maturity of a 12 year bond with a 6.5% coupon (semiannual) is 3.875%.

So the Par Bond will have a 3.875% coupon.

If you have any questions feel free to reach out.

Lenny D.