Final answer:
The cash needed to retire Baldwin's 12.5S2030 bond early, based on its face value of $14,665,611 and close price of 93.87%, is approximately $13,765,142.
Step-by-step explanation:
To calculate the amount of cash needed to retire Baldwin's 12.5S2030 bond early, we need to consider the current market interest rate and the bond's coupon rate. Based on the given scenario, where the alternative investment's market interest rate is at 12%, an investor would not pay more than $964 for a bond that is expected to return $1,080 in a year. This is because the investor could receive a 12% return by investing $964 in an alternative investment to get $1,080 after one year ($964(1 + 0.12) = $1080). Therefore, to retire the bond early, the cash needed will likely be the product of the bond's face value and the current price-to-face value ratio, which is $964/$1,000 for our comparable scenario.
Given the bond's face value of $14,665,611 and the close price of 93.87%, we can approximate the cash needed for early retirement by multiplying the face value by this percentage:
Cash Needed = Bond's Face Value x Close Price
Cash Needed = $14,665,611 x 0.9387
Cash Needed = $13,765,142 (rounded)
This calculation is consistent with the provided options indicating the bond's value at the current market price.