Your firm is planning a 25 year bond issue. The $1000 par value bonds will pay a semi-annual coupon of $59.80. The investment bankers that you have retained for the bond issue estimate that the bonds will sell for $1,183.12. What is the rate of return that your firm is paying on the bonds?
Given that;
Face value of the bond is $1000
Semiannual coupon payment=$59.8
Present value of the bond is $1183.12
Time period is 25 years. As the coupon payment is made
semiannually, the number of periods is 25*2=50
We can determine the rate of return using excel as:
Answer: Hence, the annual rate of return is 9.96%
Your firm is planning a 25 year bond issue. The $1000 par value bonds will pay...
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