Question
A company issues 1,000,000 in bonds. The prevailing yield rate on the bonds is 12%. The company considers having coupons at 8% and a maturity
A company issues 1,000,000 in bonds. The prevailing yield rate on the bonds is 12%. The company considers having coupons at 8% and a maturity of 15 years. On second thought, the company decides on a maturity date of 20 years. What coupon rate must the bond issue have in order for the company to raise the same amount of revenue as it would have on the 15-year issue? Suppose the company issued the bonds with a maturity date of 10 years. What coupon rate is required to raise the same amount as under the other two issues?
The solution in the textbook states that r=.0417 every 6 months for the 20 year issue and r=.0354 every 6 months for the 10 year issue. I cannot seem to find out how they came up with these answers, please help! Also, please show all steps. Thank you!
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