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Homework answers / question archive / Polycorp is about to issue debentures
Polycorp is about to issue debentures. The following information is available.
1. The coupon rate is 8% pa (or .08). Coupons are paid annually
2. The yield to maturity (YTM) is 0.09 pa
3. The face value is $100
4. The term is 3 years
How much can the debentures be issued for? Your answer should be accurate to the nearest cent. Note that the YTM is expressed as a decimal, so .06 is 6% pa.
We can calculate the issue price of debentures by using the following formula in excel:-
=-pv(rate,nper,pmt,fv)
Here,
PV = Issue price
Rate = 9%
Nper = 3 periods
Pmt = Coupon payment = $100*8% = $8
FV = $100
Substituting the values in formula:
= -pv(9%,3,8,100)
= $97.47
