Question
XYZ corporation would like to raise $25 million to invest in capital expenditures. The company plans to issue five-year bonds with a face value of
XYZ corporation would like to raise $25 million to invest in capital expenditures. The company plans to issue five-year bonds with a face value of $1000 and a coupon rate of 4.75% (semi-annual payments). The following table summarizes the yield to maturity for five-year coupon corporate bonds of various ratings:
Rating | AAA | AA | A | BBB | BB |
Yield to maturity | 6.20% | 6.50% | 6.75% | 6.90% | 7.50% |
How much total principal amount of these bonds must XYZ issue to raise $25 million today, assuming the bonds are AA rated? (Because XYZ cannot issue a fraction of a bond, assume that all fractions are rounded to the nearest whole number.)
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