The coupon rate that the company issuing new semi-annual 10-year bonds at par with a BBB rating is 8%, given its 2% credit spread with the treasury bonds.
A credit spread shows the difference in the yield rate between a U.S. Treasury bond and another debt security that has the same maturity period but a different credit quality.
Treasury bonds rate = 6%
Credit Spread for BBB rating = 2%
Coupon rate for a BBB-rated company = 8% (6% + 2%)
Use the following information for this question:
Rating Credit Spread
AAA 0.50%
AA 0.75%
BBB 2.00%
10-year treasury bonds ($100 Par value) with semi-annual coupons and a 6% coupon rate have a price of $95.00.
Thus, the coupon rate that the company issuing new semi-annual 10-year bonds at par with a BBB rating is 8%, given its 2% credit spread with the treasury bonds.
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