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26 September, 16:31

Setrakian Industries needs to raise $71.8 million to fund a new project. The company will sell bonds that have a coupon rate of 5.78 percent paid semiannually and that mature in 25 years. The bonds will be sold at an initial YTM of 6.46 percent and have a par value of $2,000. How many bonds must be sold to raise the necessary funds

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  1. 26 September, 17:21
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    39,183 bonds

    Explanation:

    In order to determine the number of bonds that must be sold to realize cash of $71.8 million, the price per bond needs to be established using pv formula in excel as found below:

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

    rate is yield to maturity of 6.46% divided by 2

    nper is the number of coupon payments which is 25 years multiplied by 2 i. e 50

    pmt is the amount of semiannual coupon i. e $2000*5.78%*6/12=$57.8

    fv is the face value of $2000 per bond

    =-pv (6.46%/2,50,57.8,2000) = $ 1,832.43

    number of bonds to be issued=$71,800,000/$ 1,832.43 = 39,183 bonds
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