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To finance a long term project, your firm will issue 30 year bonds with a $100 million total face value. The contractual coupon rate will
To finance a long term project, your firm will issue 30 year bonds with a $100 million total face value. The contractual coupon rate will be 2% for the first 10 years, and 3% for the following next 20 years. The yield curve is flat and Treasuries yield 2%.
a)what is the maximum amount the company can expect to raise? Explain.
b)Suppose after the bonds are issued the yields on Treasuries rose. If the yield spread on the companys bonds is constant, what would happen to the price of the bonds? Why?
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