Thalin Inc. has decided to extend its current product line. To finance the project, the firm is

Question:

Thalin Inc. has decided to extend its current product line. To finance the project, the firm is considering issuing a ten-year, $1,000 face value, 10 percent coupon bond. The firm has made public that its target debt-to-equity ratio of 30 percent is not going to change in the foreseeable future. Two years ago the firm issued a twelve-year, $1,000 face value, 10 percent coupon bond to finance a similar project. The current market price of the bond is $1,065. At what rate should the firm issue the new bond?

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...