The Buy N Large Corporation is considering issuing some bonds. They wish to issue 1000 bounds with a monthly coupon, an APR of 12%, and a face value of $100. You can see that other bonds previously issued by Buy N Large have an annual yield to maturity of 10%. Assume that choosing to issue these bonds doesn’t change the riskiness, and thus the yield to maturity, of Buy N Large’s bonds.

a. How much will each coupon payment be?

b. What will the price of the bond be when issued?

c. How much money will Buy N Large raise from the sale of these bonds?

d. Imagine now that investors think that Buy N Large is borrowing too much money and thus believe bonds issued by Buy N Large is riskier (more likely to default). What do you expect to happen to the yield to maturity of Buy N Large bonds? What do you expect to happen to the prices of Buy N Large bonds? No calculations are needed, just directional predictions are OK.

Answer rating: 100% (QA)

a To calculate the coupon payment we need to determine the monthly coupon rate The annual coupon rat... View the full answer