Polycorp is about to issue debentures

Accounting Aug 08, 2020

Polycorp is about to issue debentures. The following information is available.

1. The coupon rate is 8% pa (or .08). Coupons are paid annually

2. The yield to maturity (YTM) is 0.09 pa

3. The face value is $100

4. The term is 3 years

How much can the debentures be issued for? Your answer should be accurate to the nearest cent. Note that the YTM is expressed as a decimal, so .06 is 6% pa.

Expert Solution

We can calculate the issue price of debentures by using the following formula in excel:-

=-pv(rate,nper,pmt,fv)

Here,

PV = Issue price

Rate = 9%

Nper = 3 periods

Pmt = Coupon payment = $100*8% = $8

FV = $100

Substituting the values in formula:

= -pv(9%,3,8,100)

= $97.47

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