Setrakian Industries needs to raise $71.8 million to fund a new project. The company will sell bonds that have a coupon rate of 5.78 percent paid semiannually and that mature in 25 years. The bonds will be sold at an initial YTM of 6.46 percent and have a par value of $2,000. How many bonds must be sold to raise the necessary funds

Question

Izabelle Fuentes

Business

18 August, 18:37

Setrakian Industries needs to raise $71.8 million to fund a new project. The company will sell bonds that have a coupon rate of 5.78 percent paid semiannually and that mature in 25 years. The bonds will be sold at an initial YTM of 6.46 percent and have a par value of $2,000. How many bonds must be sold to raise the necessary funds

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Tristan Holder · Answer 1

39,183 bonds

Explanation:

In order to determine the number of bonds that must be sold to realize cash of $71.8 million, the price per bond needs to be established using pv formula in excel as found below:

=-pv (rate, nper, pmt, fv)

rate is yield to maturity of 6.46% divided by 2

nper is the number of coupon payments which is 25 years multiplied by 2 i. e 50

pmt is the amount of semiannual coupon i. e $2000*5.78%*6/12=$57.8

fv is the face value of $2000 per bond

=-pv (6.46%/2,50,57.8,2000) = $ 1,832.43

number of bonds to be issued=$71,800,000/$ 1,832.43 = 39,183 bonds