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Assume that a company in Sioux City, IA issues 15-years bonds (call it bonds A) at...

  1. Assume that a company in Sioux City, IA issues 15-years bonds (call it bonds A) at their par value of $1,000. These bond have $70 in interest every quarter

These bonds are selling at $1000 issue price. This company realizes that to expand their business to the surrounding area of Sioux City,

They need an additional $5,000,000 in long-term debt. They decided to issue 12-year, $1,000 par value bonds (Call it bonds B) that pay only $40 in interest every quarter. Assume also that A and B will provide bondholders with the same yield, how many new bonds must the city issue to raise $5,000,000? (Ignore the day or two difference between the bonds' issue dates and any bond flotation costs.)

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Ans : 10806.45 bonds

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