Suppose on January 1, 2021 you discover an exciting new remote working tool and need to raise $6 million to scale production for mass distribution. After consulting with your business partner, you decide to raise this money by issuing a bond. The investment bankers offer you two options:

i.              Issue a 3-year, $6 million coupon bond at 8% with interest payments due annually on December 31 of each year

ii.             Issue a 3-year zero coupon bond

Suppose you decide to issue the coupon bond on January 1, 2021 when the market rate is 8%. How would your balance sheet be affected by:

a.            The issuance of the bond?

b.            Interest expense for the fiscal period ending December 31, 2021?

c.             Repurchase of the bond on January 1, 2022, for $5.2 million.

Answer rating: 100% (QA)

Since coupon rate of bonds is equal to market rate the bonds issuance price is equal ... View the full answer