Answer:
The company’s total book value of debt is $95,000,000.
Explanation:
1st Issue of Bonds:
Face Value = $45,000,000
Market Value = 95%*$45,000,000
= $42,750,000
Annual Coupon Rate = 6%
Semiannual Coupon Rate = 3%
Semiannual Coupon = 3%*$45,000,000
= $1,350,000
Time to Maturity = 26 years
Semiannual Period to Maturity = 52
Let semiannual YTM be i%
$42,750,000 = $1,350,000*PVIFA(i%, 52) + $45,000,000*PVIF(i%, 52)
Using financial calculator:
N = 52
PV = -42750000
PMT = 1350000
FV = 45000000
2nd Issue of Bonds:
Face Value = $50,000,000
Market Value = 54%*$50,000,000
= $27,000,000
Time to Maturity = 15 years
Semiannual Period to Maturity = 30
Let semiannual YTM be i%
$27,000,000 = $50,000,000*PVIF(i%, 30)
Using financial calculator:
N = 30
PV = -27000000
PMT = 0
FV = 50000000
Total Book Value of Debt = $45,000,000 + $50,000,000
= $95,000,000
Therefore, The company’s total book value of debt is $95,000,000.
