Stevenson Company would like to raise funds to purchase much needed replacement machines that are wearing down and outdated. The financial manager suggests to the Board of Directors that the best strategy is to issue bonds.

a. If Stevenson Company issues the bonds, what is the value of a Stevenson bond that matures in 3 years and pays semi -annually interest. The offered coupon rate is 10% and the principal is $1000. The market rate of return is currently 12%?

b. Stevenson Company also had previously issued bonds which will mature in 7 years and have a coupon rate of 9% semiannually, currently selling for $904.47. What is this bond’s YTM?

Answer rating: 100% (QA)

a To calculate the value of a Stevenson bond that matures in 3 years and pays semi annual interest with a coupon rate of 10 and a principal of 1000 wh... View the full answer