Unity Corporation, one of the leading food manufacturing companies of the country is wondering about raising funds
Question:
Unity Corporation, one of the leading food manufacturing companies of the country is wondering about raising funds for its operations. The company is in need of 12,000,000 Rupees. The management is considering the option of issuing bonds. Management believes that a bond worth Rs 5000 would be a feasible choice. The company plans to give an interest of 7% on the issued bonds for a period of 9 years compounded semi annually. . The company consults an investment bank and discusses the matter with them. The investment bank informs them that the State Bank is about to make a monetary policy announcement. Bond of Unity Corporation could either be sold in the market for Rs 4870 or Rs 5240.
Required
Suggest in which case the company can issue the bond for 4870 and in which case it can issue it at 5240.
Assuming that the State Bank decides the rate as 7%, how many bonds should company issue.
Accounting Business Reporting for Decision Making
ISBN: 9780730302414
4th edition
Authors: Jacqueline Birt, Keryn Chalmers, Albie Brooks, Suzanne Byrne, Judy Oliver