Question

Setrakian Industries needs to raise $96.2 million to fund a new project. The company will sell bonds that have a coupon rate of 6.04 percent paid semiannually and that mature in 30 years. The bonds will be sold at an initial YTM of 6.85 percent and have a par value of $2,000. How many bonds must be sold to raise the necessary funds? (Round your intermediate calculations to two decimal places and final answer to the nearest whole number.)
a) 66,997 bonds
b) 185,900 bonds
c) 53,598 bonds
d) 96,200 bonds
e) 48,100 bonds

Answer 1

Answer:

OPTION C is correct

number of bonds that must be sold to raise the necessary funds is 53,597 Bonds

Explanation:

First we need to determine how much they sold each bond of $2,000 face value, this can be done using Excel function -pv(rate,nper,pmt,fv)

But we were told that coupon rate of 6.04 percent was paid semiannually and that mature in 30 years, Then the rate used in that function is the coupon rate/2 = 6.85%/2=3.425 which is tied to maturity.

pmt function used = [$2,000×(6.04/100)×(6/12)]=60.5 which is the coupon amount

nper function is (30years× 2) since it is been paid paid semiannually

Note that we were given a face value of $2,000 per bond, then the function can be analyse as

=-pv(6.85%/2,60,60.40,2000)

= 1,794.9

Therefore, single bond =$ 1,794.9 then

Then number of bonds that must be sold to raise the necessary funds

=(96,200,000)/1,794.9

= 53,597