Question
In: Finance
A firm raises capital by selling $20,000 worth of debt with flotation costs equal to 3%...
A firm raises capital by selling $20,000 worth of debt with flotation costs equal to 3% of its par value. If the debt matures in 5 years and has an annual coupon interest rate of 7%, what is the bond's YTM?
Solutions
Expert Solution
| Cost of debt |
| K = N |
| Bond Price *(1-flotation %) =∑ [(Annual Coupon)/(1 + YTM)^k] + Par value/(1 + YTM)^N |
| k=1 |
| K =5 |
| 1000*(1-0.03) =∑ [(7*1000/100)/(1 + YTM/100)^k] + 1000/(1 + YTM/100)^5 |
| k=1 |
| YTM = 7.75% |
jeff jeffy answered 4 months agoRelated Solutions
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in this unit and the course. Do you agree with the positions taken
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