Question

Setrakian Industries needs to raise $96.2 million to fund a new project. The company will sell bonds that have a coupon rate of 6.04 percent paid semiannually and that mature in 30 years. The bonds will be sold at an initial YTM of 6.85 percent and have a par value of $2,000. How many bonds must be sold to raise the necessary funds

Answer 1

53,597 Bonds

Step-by-step explanation:

The first is to determine how much each bond of $2,000 face value is sold using the excel pv function below:

=-pv(rate,nper,pmt,fv)

rate is the yield to maturity which is 6.85% divided by 2

nper is the number of semiannual coupons the bond would pay i.e 30*2

pmt is the amount of semiannual coupon i.e $2,000*6.04%*6/12=60.4

fv is the face value of $2,000 per bond

=-pv(6.85%/2,60,60.40,2000)= 1,794.86

a bond is $ 1,794.86

number of bonds=$96,200,000/$1,794.86= 53,597