Question
A company needs to raise $1,000,000 with 15-year-bonds with annual coupons and face value of $5000. Let's say the current market rate for our kind
A company needs to raise $1,000,000 with 15-year-bonds with annual coupons and face value of $5000. Let's say the current market rate for our kind of bonds is r=3%. A choice we need to make is what coupon rate R our bonds should offer. Let's work through two choices: let's say Bond A has coupon rate R=3%, and Bond B has coupon rate R=6%. i. what is the current market price of both bonds ii. what is the number of each bond we would need to sell to raise the $1,000,000 iii. what is the total interest payment the company has to make at the end of each year in either case. iv. what is the balloon payment the company has to make after 15 years in either case
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