Selling bonds. Lunar Vacations needs to raise $6,200,000 for its new project (a golf course on...
Selling bonds. Lunar Vacations needs to raise $6,200,000 for its new project (a golf course on the moon). Astro Investment Bank will sell the bond for a commission of 2.3%.
The market yield is currently 7.1% on twenty-year semiannual bonds. If Lunar wants to issue a 6.2% semiannual coupon bond, how many bonds will it need to sell to raise the
$6,200,000? Assume that all bonds are issued at a par value of $1,000.
How many bonds will Lunar need to sell to raise the $6,200,000?
Homework Answers
First we find the price of the bond
Using financial calculator
Input: FV= 1000, I/Y=7.1/2
N=20*2=40
PMT=6.2%*1000/2= 31
Solve for PV as -904.64
Commission on above price= 2.3%*904.64 = 20.81
hence net proceeds to the company per bond = 904.64-20.81 = 883.84
Number of bonds to be sold = 6200000/883.84 = 7014.84
rounded off to 7015 bonds
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