# Answer to Question #35710 in Finance for angela lintz

Question #35710

Coccia Co. wants to issue new 20-year bonds for some much-needed expansion projects. The company currently has 7 percent coupon bonds on the market that sell for $1,085, make semiannual payments, and mature in 20 years. What coupon rate should the company set on its new bonds if it wants them to sell at par

Expert's answer

Coupon rate is annual payout as a percentage of the bond's par value.

`Compounding = semi annually `

Par Value = 1000

Market Rate = 6.5

Market Price = 972.78

N = 40

Coupon Rate Formula

Coupon Rate = 2[ (Market Price - Par Value x PVIF(ytm%, n) ) / ( Par Value x PVIFA(ytm%, n) ) ]

PVIFA(0.0325, 40) = 22.2084332365

PVIF(0.0325, 40) = 0.278225919814

Coupon Rate Calculation

Coupon Rate = 2[ (972.78 - 1000 x 0.278225919814 ) / ( 1000 x 22.2084332365 ]

Coupon Rate = 2[ 972.78 - 278.225919814 ] / 22208.4332365

Coupon Rate = 2[694.554080186 / 22208.4332365]

Coupon Rate = 2[0.0312743394723]

Coupon Rate = 6.25%

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