A company plans to issue 5000 bonds with a face value of $100 each with a coupon

Question

A company plans to issue 5000 bonds with a face value of $100 each with a coupon rate of 10% payable semi-annually and a maturity period of 12 years. Administration costs associated with each semi-annual interest payment are $0.25 per bond. The company would receive $90 per bond after allowing for brokerage fees and discounts. Determine the before tax rate of return of this debt issue to the company. [Semi-annual discount (coupon) rate is 6.05% or 12.47 per annum: 90=100(P/F, i 24)+5.25(P/A, i 24)]

Explanation / Answer

A company plans to issue 5000 bonds with a face value of $100 each with a coupon

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