. Yientieobiaa Ltd is offering 10 million units of 15-year bonds with a face value of...

. Yientieobiaa Ltd is offering 10 million units of 15-year bonds with a face value of GH¢1000
each. Though the bonds are being offered at a price of GH¢950 each, the bonds will be redeemed
at a premium of 15%. The annual coupon rate of the bonds is 20%. Interest is payable at the end
of every six months.
A provision in the bond indenture requires that Yientieobiaa Ltd establishes a sinking fund to
accumulate enough money to pay the total redemption value of the bonds upon maturity. To
comply with this provision, Yientieobiaa Ltd plans to set aside an even amount at the end of each
quarter over the next 15 years. Each of the even amounts that will be set aside will be invested
at an annual interest rate of 24% with quarterly compounding.
Required:
Calculate the even amount that should be put into the sinking fund at the end of each quarter to
raise enough money to pay the total redemption value of the bonds.

Solutions

Expert Solution

Given,

Number of bonds= 10 Million

Face value per bond= GH¢1,000

Rate of premium on redemption= 15%

Therefore, redemption value of bonds on maturity= GH¢1000*1.15*10 Million = GH¢11,500 Million

Amount to be set aside at the end of every quarter, during the 15 years till the maturity of the bonds= GH¢21,570,797.44 as follows:

jeff jeffy answered 1 year ago

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