Bank of America Corporation (BAC) needs to raise $31 million toimprove their liquidity ratios. In...

Bank of America Corporation (BAC) needs to raise $31 million to improve their liquidity ratios. In order to raise this amount of money, BAC’s will issue 9-year bonds, with $1,000 face value, 7.50% coupon rate, quarterly coupon payments, and yield to maturity of 2.00% (APR). How many bonds BAC would have to sell to raise this money? (Round up to the nearest integer).

Group of answer choices

20,481 bonds

21,396 bonds

21,351 bonds

213,503 bonds

Solutions

Expert Solution

* We need to find the price of each bond and then divide it with the total amount to be raised to get the number of bonds that need to be issued.

You need to use a Financial calculator to solve this problem. You can download it.

N = 9 * 4 = 36 (The Bond is for 9 Years and quarterly payments, so 36 payments)

PMT => 7.5% of 1,000 = 75/4 = -18.75 ( The coupon 7.5% is on Face Value and as it is quarterly, so divided by 4)

FV = -1,000 (The Face value of bond is $1,000)

I/Y = 2/4 = 0.5 (The YTM 2% is for the year, as the bond here is quarterly, so divided by 4)

CPT + PV = 1,451.97

Money raised per bond is $1,451.97

Number of bonds to be raised = Total Money To be raised / Money raised per bond

= 31,000,000 / 1,451.97

= 21,350.30

So the correct answer is 21,351 bonds

jeff jeffy answered 1 year ago

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