Selling bonds. Rawlings needs to raise $38,600,000 for its new manufacturing plant in Jamaica. Berkman Investment Bank will sell the bond for a commission of 2.8 %. The market yield is currently 7.8 % on twenty-year zero-coupon bonds. If Rawlings wants to issue a zero-coupon bond, how many bonds will it need to sell to raise the $38,600,000? Assume that the bond is semiannual and issued at a par value of $ 1,000.
K = Nx2 |
Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k] + Par value/(1 + YTM/2)^Nx2 |
k=1 |
K =20x2 |
Bond Price =∑ [(0*1000/200)/(1 + 7.8/200)^k] + 1000/(1 + 7.8/200)^20x2 |
k=1 |
Bond Price = 216.46 |
Bonds to issue = amount to raise/(bond price*(1-commission %))
=38600000/(216.46*(1-0.028))=183460.84 ~183461
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