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Zheng Corporation plans to issue new bonds to finance its expansion plans. In its efforts to price the issue, Zheng Corporation has identified a company of similar risk with an outstanding bond issue that has an 8 percent coupon rate having a maturity of ten years. This firm's bonds are currently selling for $1,091.96. If interest is paid annually for both bonds, what must the coupon rate of the new bonds be in order for the issue to sell at par

Respuesta :

Answer:

6.71%

Explanation:

For finding out the coupon rate we need to apply the RATE formula i.e be shown in the attachment

Given that,  

Present value = $1,091.96

Assuming figure - Future value or Face value = $1,000  

PMT = 1,000 × 8% = $80

NPER = 10 years

The formula is shown below:  

= Rate(NPER;PMT;-PV;FV;type)  

The present value come in negative

After applying the above formula, the coupon rate is 6.71%

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