onsolidated Insurance wants to raise $35 million in order to build a new (12 poi

Question

onsolidated Insurance wants to raise $35 million in order to build a new (12 points) C headquarters. The company will fund this by issuing 10-year bonds with a face value of $1,000 and a coupon rate of 6.5%, paid semiannually. The below table sho maturity for similar 10-year corporate bonds of different ratings. Security AAA Corporate AA Corporate A Corporate BBB Corporate BB Corporate ield (%) 6.20% 6.40% 6.70% 7.00% w many more bonds Consolidated Insurance would have to sell to raise this money if their ds received an A rating rather than an AA rating?

Explanation / Answer

Bond price at AA rating $ 1,007.30 PV(6.4%/2,10*2,65/2,1000)*-1 Bonds needed to issue          34,746 35000000/1007.3 Bond price at A rating $     985.59 PV(6.7%/2,10*2,65/2,1000)*-1 Bonds needed to issue          35,512 35000000/985.59 More bonds needed to issue 766 35512-34746

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