Smart Egg, Corp, socks to raise n quantity of capital to expand its business int

Question

Smart Egg, Corp, socks to raise n quantity of capital to expand its business internationally. After consulting with their investment bankers. Smart Egg decides that raising money through bonds would be most beneficial to their corporate capital structure. At the beginning of the year. Smart Egg, Corp. issued face value $1,000,000 of bonds, maturing in 3 years, with a coupon rate of 10%, paid semi-annually. Investors require at least 6% return to invest in Smart Egg. Corp.'s bonds. The following information from the Time value are provided. Based on the information provided above, determine the Following: The selling price of the bond on issue date. Whether the bond will sell at Premium, Discount, or Par. The amount of any Discount or Premium. Otherwise indicate that this is a Par bond.

Explanation / Answer

1. Price of the bond= PV of an annuity of semi-annual coupon payments@ 3% for 6 periods   +                                        PV of Face value to be recd. At maturity @ PV F 3% ,6 periods                                    = (30000*5.4172)+(1000000*0.8375) 1000016 Premium- Negligible- (16) Hence treated as par 2. The bond sells at par 3.This is a Par Bond

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