question archive Selling bonds Lunar Vacations needs to raise $6,300,000 for its new project? (a golf course on the? moon)

Selling bonds Lunar Vacations needs to raise $6,300,000 for its new project? (a golf course on the? moon)

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Selling bonds Lunar Vacations needs to raise $6,300,000 for its new project? (a golf course on the? moon). Astro Investment Bank will sell the bond for a commission of 2.9%. The market yield is currently 7.8% on? twenty-year semiannual bonds. If Lunar wants to issue a 6.2% semiannual coupon? bond, how many bonds will it need to sell to raise the $6,300,000?? Assume that all bonds are issued at a par value of $1,000.

How many bonds will Lunar need to sell to raise the ?$6,300,000??

 

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Total number of bonds to be issued 6,488

 

Total amount to be raised ?$6,300,000

Divide by: (100%-2.9%) Divide by 97.1%

Total amount to be raised grossed of commission 6,488,157,

Divide by par Value of bonds Divide by 1, 000

Total number of bonds to be issued 6,488

 

 

Step-by-step explanation

The only amount that would affect the value of the bonds is the commission. the yield percentage and the coupon percentage is irrelevant in computing the value to be raised.

 

To check if the answer if correct:

Total Number of bonds to be issued 6,488

Multiply by Par value X1,000

Gross amount to be raised 6,488,000

Less: commission (6,488,000x2.9%) 188,152

Amount to be raised: 6,300,000 * difference is due to rounding off error

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