Your company needs to raise $2 million by selling some coupon bonds at par value

Finance Dec 16, 2020

Your company needs to raise $2 million by selling some coupon bonds at par value. Comparable bonds in the market have a 7.5 percent annual coupon, 15 years to maturity, and are selling at $976.87. What coupon rate should you set on your company bonds?

Expert Solution

Computation of Coupon Payment using PMT Function in Excel:

=pmt(rate,nper,-pv,fv)

Here,

PMT = Coupon Payment = ?

Rate = 7.5%

Nper = 15 years

PV = $976.87

FV = $1,000

Substituting the values in formula:

=pmt(7.5%,15,-976.87,1000)

PMT or Coupon Payment = $72.38

Coupon Rate = Coupon Payment/Face Value = $72.38/$1,000 = 7.238% or 7.24%

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