Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Blackstone Energy is planning to issue two types of 25 year, non-callable bonds to raise a total of $6 million. First 3,000 bonds with a

image text in transcribed
Blackstone Energy is planning to issue two types of 25 year, non-callable bonds to raise a total of $6 million. First 3,000 bonds with a 10% annual coupon rate will be sold at their $1.000 par value to raise $3 million. Second original issue discount (OID) bonds, also with a 25-year maturity and a $1,000 par value, will be sold, but these bonds will have a nominal coupon of only 6.85%, also with annual payments. The OID bonds must be offered at a discount (ie, below par) in order to provide investors with the same vield as the par bonds. How many OID bonds must the frm issue to raise the other $3 million? You may round your answer up or down to a whole number of bonds. Hint: Calculate the price of OID bonds (given the nominal coupon rate and yield of 10%), and divide that price into the $3 million. Your answer should be between 3150 and 4850, with no special characters

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Small Business Finance And Valuation

Authors: Rick Nason, Dan Nordqvist

1st Edition

1952538122, 9781952538124

More Books

Students also viewed these Finance questions

Question

What appraisal intervals are often used in appraisal reviews?

Answered: 1 week ago

Question

What are the various alternatives?

Answered: 1 week ago