QUESTION 8

1. Moon Software Inc. is planning to issue two types of 25-year, noncallable bonds to raise a total of $6 million, $3 million from each type of bond. First, 3,000 bonds with a 10% semiannual coupon will be sold at their $1,000 par value to raise $3,000,000. These are called "par" bonds. 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 semiannual coupon of only 7.75%. 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 $3,000,000? Disregard flotation costs, and round your final answer up to a whole number of bonds.

   	a.	3,096
   	b.	3,927
   	c.	3,776
   	d.	4,456
   	e.	2,870

0.5 points

QUESTION 9

1. Tucker Corporation is planning to issue new 20-year bonds. The current plan is to make the bonds non-callable, but this may be changed. If the bonds are made callable after 5 years at a 5% call premium, how would this affect their required rate of return?

   	a.	The required rate of return would decline because the bond would then be less risky to a bondholder.
   	b.	The required rate of return would increase because the bond would then be more risky to a bondholder.
   	c.	There is no reason to expect a change in the required rate of return.
   	d.	It is impossible to say without more information.
   	e.	Because of the call premium, the required rate of return would decline.

0.5 points

QUESTION 10

1. Grossnickle Corporation issued 20-year, noncallable, 7.4% annual coupon bonds at their par value of $1,000 one year ago. Today, the market interest rate on these bonds is 5.5%. What is the current price of the bonds, given that they now have 19 years to maturity?

   	a.	$1,037.46
   	b.	$939.82
   	c.	$1,342.60
   	d.	$1,220.55
   	e.	$1,330.39