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2) Star Fashions Ltd plans to raise long-term funds from the capital market. The Company can issue 5-year bonds with a total face value of
2) Star Fashions Ltd plans to raise long-term funds from the capital market. The Company can issue 5-year bonds with a total face value of $20 million. Each bond has a face value of $1000. These bonds will have an 8% coupon rate with interest payable annually. In the present financial market condition, new bonds with the same risk and maturity provide yields to maturity of 12%.p.a. Calculate the issue price of each bond and the total proceeds that the company can raise from the bond issue. First calculate the issue price of 1 bond: Bo= Coupon Payment x PVIEAkn + Par x PVIER then find the total proceeds: Total proceeds =
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