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30 November, 09:46

McConnell Corporation has bonds on the market with 15.5 years to maturity, a YTM of 6.2 percent, a par value of $1,000, and a current price of $1,039. The bonds make semiannual payments.

What must the coupon rate be on these bonds?

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  1. 30 November, 10:34
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    Coupon rate is 6.4%

    Explanation:

    The coupon payment on a bond can be computed from a formula of current price of a bond

    current price of a bond=coupon amount/yield to maturity

    coupon amount=current price * yield to maturity

    current price is $1039

    yield to maturity is 6.2%

    coupon rate = $1039*6.2%

    =$64.42

    Coupon rate=coupon amount/par value of bond

    coupon amount $64.42

    par value of bond=$1000

    coupon rate = $64.42/$1000

    =6.4%
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