After Dan’s analysis for East Coast Yachts (see the Case study for Module 2), Larissa has decided to expand the company’s operations. She has asked Dan to enlist an underwriter to help sell $50 million (total value of all bonds) in new 20-year (maturity of each bond) bonds to finance new construction. Dan has entered into discussions with Kim McKenzie, an underwriter from the firm of Crowe & Mallard, about which bond features East Coast Yachts should consider and also what coupon rate the issue will likely have. After examining all features of each type of bonds, Dan is considering to issue coupon bearing bonds or zero coupon bonds. The YTM on either bond issue will be 7.5 percent. The coupon bond would have a 7.5 percent coupon rate.

-How many of the coupon bonds must East Coast Yachts issue to raise the $50 million? How many of the zeroes must it issue?

-In 20 years, what will be the principal repayment due if East Coast Yachts issues the coupon bonds? What if it issues the zeroes?

Answer rating: 100% (QA)

To raise 50 million in total value through bond issuance we first need to calculate the amount that ... View the full answer