18. BDJ Inc. wants to issue new 10-year bonds. The company currently has 8% coupon,
$1,000 face value bonds on the market that sell for $1,095, make semi-annual coupon
payments and mature in 10 years. What coupon rate should the company set on its new
bonds if it wants to sell them at par today?
A) 2.89%
B) 3.34%
C) 5.78%
D) 6.68%
E) 6.79%
Answer D
P = $1,095 = $40 x PVIFA(r,20) + $1,000/ (1+r)
20 Solving for r = 3.34% Î YTM = Coupon Rate (since the bonds sell at par) = 6.68%.
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