FIN Stephens - (annual percentage yield)? 1. n = 40 r = ?...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
A2. (Comparing borrowing costs) Stephens Security has two financing alternatives: (1) A publicly placed $50 million bond issue. Issuance costs are $1 million, the bond has a 9% coupon paid semiannually, and the bond has a 20-year life. (2) A $50 million private placement with a large pension fund. Issuance costs are $500,000, the bond has a 9.25% annual coupon, and the bond has a 20-year life. Which alternative has the lower cost
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: (annual percentage yield)? 1. n = 40 r = ? PV = -($50 - $1) = -$49 PMT = 9% / 2 x $50 = $2.25 FV = $50 r = 4.61% APY = (1 + 0.0461) 2-1 = 9.4334% 2. n = 20 r = ? PV = -($50 - $0.5) = -$49.5 PMT = 9.25% x $50 = $4.625 FV = $50 r = 9.36% APY = 9.36% Choice 2 has the lower APY....
View Full Document

Ask a homework question - tutors are online