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# Finance Course Work (Math Problem Sample)

Instructions:

- What annual coupon rates would Carem have to pay in order to issue 10-year par value bonds and receive proceeds of $2 million?
- What would be the impact on Carem’s funding plans if it included a call feature in the bond, effective five years from date of issue. The call price would be 110% of par value. What would be the benefits of including the call feature?

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Content:

Finance Course Work

Name

Institution

Professor

November 8, 2015

What annual coupon rates would Carem have to pay in order to issue 10-year par value bonds and receive proceeds of $2 million?

Value of the bond = Present value of the annual coupon interest + Present value of the principal amount after 10 years

Value of the bond = PVAF r% 10 years (Interest) + PVIF r% Year 10 (Principal)

Using the YTM rate of 11% for 10 years

Value of the bond = PVAF 11% 10 years (Interest) + PVIF 11% Year 10 (2,000,000)

From the Annuity tables:

PVAF 11% 10 years = 5.8892

PVIF 11% Year 10 = 0.3522

Current value of the bond = 2,000,000

Current value of the bond = 5.8892 (Interest) + (0.3522 x 2,000,000)

2,000,000 = 5.8892 (Interest) + 704400

5.8892 (Interes...

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