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2 pages/≈550 words
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Other
Subject:
Mathematics & Economics
Type:
Math Problem
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English (U.S.)
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Finance Course Work (Math Problem Sample)

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