Answer:
Coupon (R) = 6.4% x $1,000 = $64
Bond yield (kd) = 7.5% = 0.075
No of years (n) = 20 years
No of compounding periods (m) = 2
Po= R/m(1-(1+Kd/m)-nm/Kd/m + FV/(1+Kd/m)nm
Po = <u>64/2(1-(1+0.075/2)-20x2</u> + 1,000/(1+0.075/2)20x2
0.075/2
Po = 32(1-(1+0.0375)-40 + 1,000/(1 + 0.0375)40
0.0375
Po = 32(1-0.2293) + 229.34
0.0375
Po = 32(20.552) + 229.34
Po = $957
Current market price less commission
= $957 - 2.5% x $957
= $957 - $23.925
= $933.075
No of bonds to issue = $6,100,000/$933.075
= 6,538 units
Explanation:
In this case, we need to determine the current market price of the bond, which is a function of present value of coupon and present value of the face value of the bond. Thereafter, we will deduct the issuing commission from the current market price. Finally, we will divide the value of the bond raised by the current market price after adjusting for commission so as to obtain the number of bonds issued.
