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MODULE 8 - UNRECORDED

MODULE 8 - UNRECORDED - 1 Kb Nesbitt example Nesbitt...

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1) Kb Nesbitt example Nesbitt Company will issue a bond with four-year maturity and $1,000 face value. The company must issue the bond for $932.21 (a discount) because interest rates have risen after the company and its investment banker set a coupon rate of 7½ percent. Flotation costs per bond will average $13. What is the expected cost K b of bond financing ignoring tax consequences? Nearest Student Response Value Correct Answer Feedback A. 10% APR B. 7.65% C. 13.2% D. 12% E. 9.4% Score: 0% General Feedback: REM that Kb is YTM based on proceeds, so don't use the effective rate. And don't forget to adjust the periodic rate for twice anually. 2) Kb effective Nesbitt example Nesbitt Company will issue a bond with four-year maturity and $1,000 face value. The company must issue the bond for $932.21 (a discount) because interest rates have risen after the company and its investment banker set a coupon rate of 7½ percent. Flotation costs per bond will average $13. What is the effective cost K b of bond financing ignoring tax consequences, that is, the effective cost of bond financing to Nesbitt Company? Nearest Student Response Value Correct Answer Feedback A. 10.25% APR B. 10% C. 13.2% D. 12.67% E. 14.43% Score: 0% General Feedback: The problem asks you to find the ERI, so do that after solving for the YTM based on proceeds (a nominal rate).
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