Answer:
4500 bonds
Explanation:
In the given information:
Bond Life - 25 years
Sale value of bond - $1,000
Rate:
- Semi – annual bond – 10%
- second semi – annual bond – 6%
Original Issue Discount (OID) value of bond - $1,000
Bond value of OID – 25 years
First, we have to calculate total yield and its effectiveness for both type of bond:
rate = 10%
The yield of bond = $1000 ×25 ×2× 10%
= $5000
Since the bond is sold, so it would be added while calculating total yield
So total yield = $5,000 + $1,000
= $6,000
Yield effectiveness = Total Yield / Bond price
= 6000 /1000
= 6
So, the yield effectiveness for bond par is 6 for this type of bond.
Rate = 6%
The yield of bond = $1000 ×25 ×2× 6%
= $3,000
Since the bond is sold,
So total yield = $3,000 + $1,000
= $4,000
Yield effectiveness = Total Yield / Bond price
= 4,000 / 6
= 666.67
So, the yield effectiveness for OID bond par is $666.67.
Now, after calculating the yield effectiveness of OID bond we can calculate the number of bonds for raising by the following formula
= amount issued / yield effectiveness of OID bond
= $3,000,000./ $666.67
= 4500 bonds
Thus, 4500 bonds is to raise for issuing $3,000,000.
