(Annual yield and financing expenses) On 15 August 2016, Corporate Junk issues $100 million of 10-year bonds. The bonds have a coupon of 10%, payable semiannually on 15 February and 15 August of each year. They are issued at par. Corporate Junk’s financing expenses related to the bond issue are $4 million.

a. Compute the annualized yield to the bond investors and the annualized cost to the company.

b. On 18 October 2016, the Corporate Junk bond issue is selling for

$103. Use XIRR to compute the investor’s yield to maturity (YTM)

of the bonds.