Henley Corporation has bonds on the market with 19.5 years to maturity, a YTM of 11.2 percent, a par value of $1,000, and a current price of $936. The bonds make semiannual payments. What must the coupon rate be on the bonds

Coupon rate = 0.10386 or 10.386%

Explanation:

To calculate the price of the bond today, we will use the formula for the price of the bond. We assume that the interest rate provided is stated in annual terms. As the bond is a semi annual bond, the coupon payment, number of periods and semi annual YTM will be,

Coupon Payment (C) = C

Total periods (n) = 19.5 * 2 = 39

r or YTM = 0.112 * 6/12 = 0.056 or 5.6%

The formula to calculate the price of the bonds today is attached.

936 = C * [( 1 - (1+0.056)^-39) / 0.056]  + 1000 / (1+0.056)^39

936 = C * 15.72449494  +  119.4282835

936 -  119.4282835 = C * 15.72449494

816.5717165 / 15.72449494  =  C

C = 51.9299 rounded off to 51.93

If the semi annual coupon is 51.93, the annual coupon payment will be = 51.9299 * 2 = 103.8598 rounded off to 103.86

The coupon rate stated in annual terms will be = 103.86 / 1000

Coupon rate = 0.10386 or 10.386%

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