Question
Moon Software Inc. is planning to issue two types of 15-year, noncallable bonds to raise a total of $4 million, $2 million from each type
Moon Software Inc. is planning to issue two types of 15-year, noncallable bonds to raise a total of $4 million, $2 million from each type of bond. First, 2,000 bonds with a 12% semiannual coupon will be sold at their $1,000 par value to raise $2,000,000. These are called "par" bonds. Second, Original Issue Discount (OID) bonds, also with a 15-year maturity and a $1,000 par value, will be sold, but these bonds will have a semiannual coupon of only 5.25%. The OID bonds must be offered at below par in order to provide investors with the same effective yield as the par bonds. How many OID bonds must the firm issue to raise $2,000,000? Disregard flotation costs, and round your final answer up to a whole number of bonds. Do not round your intermediate calculations.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started