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MLC Audio has decided to issue 3-year bonds denominated in 10 million Singapore dollars. The bonds...

MLC Audio has decided to issue 3-year bonds denominated in 10 million Singapore dollars. The bonds have a coupon rate of 10%. The Singapore dollar is expected to appreciate from its current level of $.82 to $.80, $.79, and $.78 in years 1, 2, and 3, respectively. Calculate the financing cost (in percent) of these bonds. Show how you derive the answer.

PLEASE MAKE SURE THE FINANCING COST IS IN PERCENT

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Answer #1

coupon in SGD = 1 million

Price of bond = 10*0.82 = 8.2 USD

Coupon in year 1 = 0.80 USD

coupon in Year 2 - 0.79

coupon + face value in year 3 = (1 + 10)*0.78 = 8.58

Cash flows Year
                    (8.20) 0
                      0.80 1
                      0.79 2
                      8.58 3

Use IRR function in Excel

financing cost = 8.14%

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