HMK Enterprises would like to raise $10 million to invest in capital expenditures. The company plans to

Question:

HMK Enterprises would like to raise $10 million to invest in capital expenditures. The company plans to issue five-year bonds with a face value of $1000 and a coupon rate of 6.5% (annual payments). The following table summarizes the yield to maturity for five-year (annual-pay) coupon corporate bonds of various ratings:image text in transcribed

a. Assuming the bonds will be rated AA, what will the price of the bonds be?

b. How much total principal amount of these bonds must HMK issue to raise $10 million today, assuming the bonds are AA rated? (Because HMK cannot issue a fraction of a bond, assume that all fractions are rounded to the nearest whole number.)

c. What must the rating of the bonds be for them to sell at par?

d. Suppose that when the bonds are issued, the price of each bond is $959.54. What is the likely rating of the bonds? Are they junk bonds?Appendix

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Corporate Finance

ISBN: 9780137845071

6th Edition

Authors: Jonathan Berk, Peter DeMarzo

Question Posted: