Chamberlain Co. wants to issue new 17-year bonds for some much-needed expansion projects. The company currently has 12.2 percent coupon bonds on the market that sell for $1,434.96, make semiannual payments, and mature in 17 years. What coupon rate should the company set on its new bonds if it wants them to sell at par

The company should set the coupon rate on its new bonds at current yield to maturity of 4.81% if it wants them to sell at par.

Explanation:

There is a need to first calculate the yield to maturity (YTM) using the following RATE function in Excel:

YTM = RATE(nper,pmt,-pv,fv) * Number of semiannuals in a year =  RATE(nper,pmt,-pv,fv)*2 (1)

Where;

YTM = yield to maturity = ?

nper = number of periods = number of years to maturity * number of semiannuals in a year = 17 * 2 = 14

pmt = semiannual coupon payment = face value * (annual coupon rate / number of semiannuals in a year) = 1000 * (12.2% / 2) = 61

pv = present value = current bond price = 1434.96

fv = face value of the bond = 1000

Substituting the values into equation (1), we have:

YTM = RATE(14,61,-1434.96,1000)*2

Inputting =RATE(14,61,-1434.96,1000)*2 into excel (Note: as done in the attached excel file), the YTM is obtained as 4.81%.

Therefore, the company should set the coupon rate on its new bonds at current yield to maturity of 4.81% if it wants them to sell at par.

1) the stages a new product goes through from beginning to end, i.e., the stages that a product passes through from introduction through growth, maturity, and decline. 2) the time from initial research and development to the time at which sales and support of the product to customers are withdrawn. 3) the period of time during which a product can be produced and marketed profitably.

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