Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
General matter's outstanding bond issue has a coupon rate of 10.4%, and it sells at a maturity of 8.5%. The firm wishes to issue additional bonds to the public. What coupon rate must the new bond offer in order to sell at face value?
Expert Solution
Step 1 - Concept
If the company will set coupen rate more than the yield to maturity, then bond will sell at premium.
If the company will set coupen rate less than the yield to maturity, then bond will sell at discount.
If the company will set coupen rate equal to the yield to maturity, then bond will sell at face value.
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