Assume Starline Healthcare needs to raise capital (money) to purchase a new x-ray machine
The CFO has suggested the following options:
a. 20 year bond, 8% coupon rate paid annually,$100,000 par value, 12% required interest rate
b. 10 year bond, 10% coupon rate paid annually,$200,000 par value, 14% required interest rate
c. 15 year bond, 9% coupon rate paid annually,$175,000 par value, 10% required interest rate
Which option (a,b or c) provides the most proceeds? (Must show work below)
ANSWER
a.
Interest rate			rate
Years to maturity			nper
Annual coupon paym			pmt
Par value			FV
b.
Interest rate			rate
Years to maturity			nper
Annual coupon payment			pmt
Par value			FV
Bond value			PV
c.
Interest rate			rate
Years to maturity			nper
Annual coupon payment			pmt
Par value			FV
Bond value			PV
Problem 2 - Bonus (Optional)
In which option will Starline Healthcare pay the most interest to bondholders? (show work below)
		Option a	Option b	Option c
Interest Paid over lifetime of bond