Question

​Dunder-Mifflin, Inc.​ (DMI) is selling​ 600,000 bonds to raise money for the publication of new magazines in the coming year. The bond will pay a coupon rate of 13.1​% with semiannual payments and will mature in 30 years. Its par value is ​$100. What is the cost of debt to DMI if the bonds raise the following amounts​ (ignoring issuing​ costs)? a.  ​$58, 554, 000 b.  ​$57 ,756 ,000 c.  ​$62,562,000 d.  ​$75,714,000

Answer 1

Coupon =13.1%*100 /2 = 6.55
FV = 100
Number of periods = 30* 2 = 60

a) Amount raised = 58,554,000
Price = 58,554,000/600,000 = 97.59
Using financial calculator
N = 60; PMT = 6.55; PV = -97.59; FV = 100 CPT I/Y ( IY = 6.72%_
YTM = 2* 6.715% = 13.43%

b) Amount raised = 57,756,000
Price = 57,756,000/600,000 = 96.26
Using financial calculator
N = 60; PMT = 6.55; PV = -96.26; FV = 100 CPT I/Y ( IY = 6.809%_
YTM = 2* 6.809% = 13.62%

c) Amount raised = 62,562,000
Price =62,562,000/600,000 = 104.27
Using financial calculator
N = 60; PMT = 6.55; PV = -104.27; FV = 100 CPT I/Y ( IY = 6.275%)
YTM = 2* 6.275% = 12.55%

d) Amount raised = 75,714,000
Price =75,714,000/600,000 = 104.27
Using financial calculator
N = 60; PMT = 6.55; PV = -104.27; FV = 100 CPT I/Y ( I/Y = 5.135%)
YTM = 2* 5.135% = 10.27%

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