The JG Investment Bank is about to issue a new series of 10 year bonds. The...

The JG Investment Bank is about to issue a new series of 10 year bonds. The bonds will have a $1000 face value and will be rated AA by a respected Bond Rating Agency. Currently, the yield to maturity on AA rated bonds is 210 basis points above the yield on similar maturity government bonds. The bonds will make annual coupon payments.

a)   If the YTM on 10 year government bonds is 2.8%, what coupon rate should JG choose if it wants the bonds to sell at par?

b)   If JG issues 1,500 bonds, how much capital will they raise from the sale?

c)   Two years later, the YTM on 8 year gov't bonds has risen to 3.2%. If the yield on AA rated bonds is still 210 basis points higher than a gov't bond, what is the new price of the bond?

d)   JG's bonds now sell at: (1) a Premium, (2) par, or (3) a discount?

Expert Solution

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

jeff jeffy answered 2 years ago

Cali Inc. wants to issue new 10-year bonds to fund its new investments. The company currently...

Cali Inc. wants to issue new 10-year bonds to fund its new investments. The company currently has 5 percent coupon bonds on the market that sell for $1,060. These bonds make semi-annual payments, and mature in 10 years. What coupon rate should the company set on its new bonds if it wants them to sell at par?What is the yield to maturityon the bonds?

Brief Exercise A-13 Dempsey Railroad Co. is about to issue $318,000 of 10-year bonds paying an...

Brief Exercise A-13 Dempsey Railroad Co. is about to issue $318,000 of 10-year bonds paying an 12% interest rate, with interest payable semiannually. The discount rate for such securities is 8%. Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) How much can Dempsey expect to receive for the sale of these bonds? (Round answer to 0 decimal places, e.g. 2,525.) Dempsey can expect to receive $ Click...

rief Exercise A-14 Dempsey Railroad Co. is about to issue $288,000 of 10-year bonds paying an...

rief Exercise A-14 Dempsey Railroad Co. is about to issue $288,000 of 10-year bonds paying an 9% interest rate, with interest payable semiannually. The discount rate for such securities is 10%. Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) In this case, how much can Dempsey expect to receive from the sale of these bonds? (Round answer to 0 decimal places, e.g. 2,525.) Dempsey can expect to...

An investment bank has been asked to underwrite an issue of 10 million shares by a...

An investment bank has been asked to underwrite an issue of 10 million shares by a company. The bank is trying to decide between a best-efforts deal where it charges a fee of $0.2 for each share sold and a firm-commitment deal where it buys the shares for $10 per share. For the latter deal, the bank considers that the selling price per share is either $10.8 or $9.8. What are the break-even probabilities of the two selling prices so...

A New Corp. wants to issue bonds with a 10% coupon rate, a face value of...

A New Corp. wants to issue bonds with a 10% coupon rate, a face value of $1,000, and 15 years to maturity. It estimates that the bonds will sell for $1,100 and that flotation costs will equal $15 per bond. The common stock currently sells for $30 per share and they can sell additional shares by incurring flotation costs of $3 per share. A dividend was paid yesterday of $4.00 per share and expects the dividend to grow at a...

Mufala, Inc., will issue $10,000,000 of 6% 10-year bonds. The market rate for bonds with similar...

Mufala, Inc., will issue $10,000,000 of 6% 10-year bonds. The market rate for bonds with similar risk and maturity is 8%. Interest will be paid by Mufala semiannually. What is the issue price of the bonds? (Refer to the appropriate table in the Present and Future Value Tables section of your tex Issue price of the bonds__________ ?

An investment banker agrees to underwrite a $600 million, 10-year, 10 percent semiannual bond issue for...

An investment banker agrees to underwrite a $600 million, 10-year, 10 percent semiannual bond issue for ABC Corporation on a firm commitment basis. The investment banker pays ABC on Thursday and plans to begin a public sale on Friday. What type of interest rate movement does the investment bank fear while holding these securities? If interest rates rise five basis points, overnight, what will be the impact on the profits of the investment banker? What if the market interest rate...

Issue Price of a Bond Lunar, Inc., plans to issue $300,000 of 10% bonds that will...

Issue Price of a Bond Lunar, Inc., plans to issue $300,000 of 10% bonds that will pay interest semiannually and mature in 5 years. Assume that the effective interest rate is 12% per year compounded semiannually. Calculate the selling price of the bonds. Use financial calculator or Excel to calculate answers. Round answers to the nearest whole number. Issue Price of a Bond Tide, Inc., plans to issue $900,000 of 9% bonds that will pay interest semiannually and mature in...

LPV Inc. wants to issue 20-year bonds with 15 warrants attached. The investment bankers estimate that...

LPV Inc. wants to issue 20-year bonds with 15 warrants attached. The investment bankers estimate that each warrant will have a value of $15.00 and that its exercise price will be equal to $25. A similar straight-debt issue would require a 12% coupon. What coupon rate should be set on the bonds-with-warrants so that the package would sell for $1,000? * 1) 6.98% 2) 7.56% 3) 8.47% 4) 8.99% 5) None of the above

Suppose Ford Motor Company sold an issue of bonds with a 10-year maturity, a $1000 par...

Suppose Ford Motor Company sold an issue of bonds with a 10-year maturity, a $1000 par value, a 10 percent coupon rate, and semiannual interest payments. a) Two years after the bonds were issued, the going rate of interest on bonds such as these fell to 6 percent. At what price would the bonds sell? b) Suppose that, two years after the initial offering, the going interest rate had risen to 12 percent. At what price would the bonds sell?...

Question