Question

Clements Marshall Ltd plans to raise $2 million to build a new onion-processing factory near Devonport...

Clements Marshall Ltd plans to raise $2 million to build a new onion-processing factory near Devonport in Tasmania. It will issue bonds with a term to maturity of 12 years. The face value per bond will be $1,000 and the coupon rate will be 7% per annum, paid semi-annually. Similar corporate bonds are trading at a yield to maturity of 8% per annum, compounded semi-annually. It is expected that these new bonds will trade at this rate. How many bonds will Clements Marshall need to issue?

Select one:

a. 2,207

b. 2,166

c. 2,165

d. 2,208

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Answer #1

Answer b. 2166 bonds

No bonds to be issued = 2,000,000 / Current market price of bond = 2000000/923.77 = 2165.05 Since bonds cant be issued in fraction so teh compnay should issue 2166 bonds.

the current market price of bond = $ 923.77 . It can be calculated using excel as shown below:

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