5. (20 points) Assume that your company needs $1, 000, 000. You are thinking to issue 10-year bonds with quarterly coupons. You want to avoid large payments at maturity so want the total face value to be $500,000. You expect yield to maturity to be 10%.

(a) (5 points) What should be the annual coupon rate on your bonds?

(b) (5 points) Assume that you can only afford to pay $30, 000 each quarter. What should be total face value of your bonds then?

(c) (10 points) Suppose that you can instead raise money in a different region with a lower tax rate on interest income. Because of lower taxes, YTM on your bonds will be lower by 2 percentage points in the different region. Assuming that you are still going to issue the same bonds as in part (b) (quarterly coupon of $30, 000, maturity of 10 years, same face value), how much more will you be able to raise? Do you think that this is a good idea, given that it will cost you $150, 000 to hire financial consultants and lawyers to issue bonds in the different region?