## JJM Corporation recently issued 10-year bonds at a price of $1,000. These bonds pay$60 in interest each six months. Their price has remaine

Question

JJM Corporation recently issued 10-year bonds at a price of $1,000. These bonds pay$60 in interest each six months. Their price has remained stable since they were issued, that is, they still sell for $1,000. Due to additional financing needs, the firm wishes to issue new bonds that would have a maturity of 10 years, a par value of$1,000, and pay $40 in interest every six months. If both bonds have the same yield, how many new bonds must JRJ issue to raise$2,000,000?

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3 years 2021-08-21T14:49:27+00:00 1 Answers 31 views 0

Calculation to determine how many new bonds must JRJ issue to raise $2,000,000 Given, Coupon rate = 8.0% Face value = 1000 Year to maturity = 10 NPER = 20 First step is to calculate the PMT using this formula PMT = Face value × Coupon rate / 2 Let plug in the formula PMT=(1000 × 0.08) / 2 PMT= 80/2 PMT= 40 Second step is to calculate the Rate using this formula Yield = 12% Rate = Yield / 2 Let plug in the formula Rate= 12% / 2 Rate= 6% Third step is to calculate the net proceeds using this formula Net proceeds= PV(rate, NPER, PMT, FV) Let plug in the formula Net proceeds= PV(6%, 20, 40, 1000) Net proceeds=$770.60
Now let calculate how many new bonds must JRJ issue to raise $2,000,000 New bonds needed=$2,000,000 / 770.60