Your company currently has $1,000 par, 5.75% coupon bonds with 10 years to maturity and a price of $1,078. If you want to issue new 10-year coupon bonds at par, what coupon rate do you need to set? Assume that for both bonds, the next coupon payment is due in exactly six months.

Your company currently has $1,000 par, 5.75% coupon bonds with 10 years to maturity and a price of $1,078. If you want to issue new 10-year coupon bonds at par, what coupon rate do you need to set? Assume that for both bonds, the next coupon payment is due in exactly six months.

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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**Understanding Bond Coupon Rates**

Your company currently has $1,000 par, 5.75% coupon bonds with 10 years to maturity and a price of $1,078. If you want to issue new 10-year coupon bonds at par, what coupon rate do you need to set? Assume that for both bonds, the next coupon payment is due in exactly six months.

---

**Solution:**

You need to set a coupon rate of **4.03%**. *(Round to two decimal places.)*

This calculation ensures that the new bonds will be issued at par value, aligning the coupon payments with the bond's market conditions.

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