Question

Caspian Sea Drinks needs to raise $24.00 million by issuing bonds. It plans to issue a 15.00 year semi-annual pay bond that has a coupon rate of 5.18%. The yield to maturity on the bond is expected to be 4.86%. How many bonds must Caspian Sea issue? (Note: Your answer may not be a whole number. In reality, a company would not issue part of a bond.)

Answer 1

Information provided:

Par value= future value= $1,000

Time= 15 years*2= 30 semi-annual periods

Coupon rate= 5.18%/2= 2.59%

Coupon rate= 0.0259*1,000= $2.59 per semi-annual period

Yield to maturity = 4.86%/2 = 2.43% per semi-annual period

The current price of the bond is calculated by computing the present value.

Enter the below in a financial calculator to compute the present value:

FV= 1,000

N= 30

PMT= 2.59

I/Y= 2.43

Press the CPT key and PV to compute the present value.

Th value obtained is 541.33.

Therefore, the current price of the bond is $541.33.

The number of bonds that Caspian Sea Drinks must issue:

= $24,000,000 / $541.33

= 44,335.2484 44,336 bonds.