Answer:
We first need to find out the present value of each $1,000 bond and then we can figure out how many of these bonds we require to raise $27 million
The n of payments is 15*2 because semi annual payments for 15 years so our N will be 30
The YTM is 7.70/2 because of semi annual payments = 3.85
The Face value is of 1,000 so FV= 1,000
The payments our 1000*0.066=66 divided by 2 because semi annual payments so PMT= 33
We will put these values in a financial calculator to compute the PV of a $1000 bond.
PV= 903
So now we know that the company can get $903 for each $1,000 bond as the bonds present value is 903.
Now in order to find out how many bonds need to be issued to raise 27 million we will divide 27 million by 903, as 903 is the amount we can raise by issuing a single bond.
27,000,000/903=29,900.3 so 29,901
The company will have to issue 29,901 bonds of face value $1,000 to raise $27 million
Explanation:
