Question
Blue Co. wants to issue new 15-year bonds for an expansion project. The company currently has 6% (annual coupon rate) coupon bonds on the market.
Blue Co. wants to issue new 15-year bonds for an expansion project. The company currently has 6% (annual coupon rate) coupon bonds on the market. This existing bond was issued 5 years ago and the original term to maturity was 20 years. Currently, this bond is selling at 120% of the par value and makes semiannual payments. The par value of bonds is $1,000. If the company wants to sell its new bonds at par, what should the coupon rate be for new bonds? Suppose that the par value of new bonds is also $1,000 and new bonds pay coupon semiannually too.
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