Face value	600,000,000
Term	20	years
Int/year	2
Expected demand rate	5.30%
Coupon rate	5.50%
Actual demand rate	8%
price of bond	(124,973,427)
	($210,762,384.55)
	($85,788,957.21)

AmeriCorning manufactures specialty glass products for use in the healthcare industry. The company is planning to expand its operations by building a new facility in Arizona, which will be financed by issuing $600 million in 20-year bonds. The bonds will pay interest at a rate that approximates the return investors will require for new AmeriCorning bonds. The bonds will pay interest twice per year.

Required:

1. Identify three or four major pieces of information that investors will use when deciding what return they expect from AmeriCorning bonds at this time. Explain the significance of each.

ANSWER:

Default risk: Pay attention to the credit rating of the bond before investing. Investment-grade bonds with credit ratings of BBB or higher have lower default risk, but relatively low reward; while non-investment-grade high-yield bond funds have a higher reward, but also relatively high risk.

Duration: Long-dated bond funds are more sensitive to interest rates. With the trend of rising inflation and possible interest rate hikes by the Federal Reserve, investors with lower risk tolerance are advised to switch to shorter-dated bond funds.

Investment region: Investors can pay attention to the investment region of the bond fund. A single regional fund has more room for growth but requires higher risk.

2. AmeriCorning and its investment bank have agreed that the market will probably demand about a 5.3% return at this time and have set the bonds coupon rate at 5.5% to make it look attractive to investors. At the time of issuance, however, the market actually demands a return of 8% from this company. Show calculations for the bonds issue price given this information.

ANSWER: 124,973,427

3. If the companys estimated return rate of 5.3% had been accurate, how much more or less cash would the bond issue have raised? Explain the difference.

ANSWER: ($85,788,957.21)