Question

Suppose Wolverine Steel Company wishes to issue a $100,000 bond with a maturity of 4 years to raise $78,101. The market requires a yield to maturity (YTM) of 11.0% for this company's borrowing/debt. How much coupon will the company have to pay every six months? (Enter just the number in dollars without the $ sign or a comma and round off decimals to the closest integer, i.e., rounding $30.49 down to $30 and rounding $30.50 up to $31.)

Answer 1

Answer:

To turn each of the payments p into a PV at the current interest rate of 11.5% per annum we divide each p by 1.0575n where n is the time until you get you payment, i.e. n= 1, 2, 3, ... 16. The total sum of thaose payments are

PV1 = p (1/1.0575 + 1/1.05752 +1/1.05753 + ... + 1/1.057516) = p (1 - 1/1.057516)/0.575

which is a standard financial formula. Note also that at the end of 8 years you will get a lump sum payment of $100000 whose PV at the current interest rate of 11.5% per annum is

PV2 = 100000/1.057516

The total present value PV1 + PV2 = $81,100 the present price of the bond. Thus you have

$81,100 = 100000/1.057516 + p (1 - 1/1.057516)/0.0575

P=3835.666058

then,

p = 100000*(i/2) and then for i.

i=7.6713321%

Answer 2

Answer:

7.25

Explanation: