On-The-Bubble Corporation, a US company, plans to issue $100,000,000 in par valu
ID: 2774163 • Letter: O
Question
On-The-Bubble Corporation, a US company, plans to issue $100,000,000 in par value of new 10-year maturity, 0% coupon rate, senior unsecured bonds. The issue would be priced at 68-00 (68% of par value) and the $68,000,000 proceeds from this issue will be exactly enough money to fund an exciting new project.
What would be the yield on this 0% coupon rate, new 10-year maturity debt to investors (and, therefore, the cost of debt to On-The-Bubble Corporation) if it were to be issued at this 68-00 price? (A, B, C, or D?)
A. 13.854 % B. 13.894 % C. 13.932 % D. 13.973 %
Explanation / Answer
C.13.932% But it seems the options are wrong. Answer should be 3.93% annual Yield
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