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Assume that Messi Ltd
Assume that Messi Ltd. would like to raise $10,000,000 with a new issuing of bonds. Assume that the issue will have a coupon rate of 5% with a 10 years maturity. Assume this are semi-annual coupon bonds and each have a face value of $1,000 and the required rates of return for similar bonds in the market is 3%. (a) What would be the issuing price of these bonds? (b) How many bonds Talga Ltd. will have to issue?
Expert Solution
a) Computation of Issue Price of Bonds using PV Function in Excel:
=-pv(rate,nper,pmt,fv)
Here,
PV = Issue Price of Bonds = ?
Rate = 3%/2 = 1.5%
Nper = 10 years*2 = 20 Periods
PMT = $1,000*5%/2= $25
FV = $1,000
Substituting the values in formula:
=-pv(1.5%,20,25,1000)
PV or Issue Price of Bonds = $1,171.69
b) Computation of Number of Bonds Talga Ltd. will have to issue:
Number of Bonds = Amount raised by Issuing Bonds/Issue Price of Bonds
= $10,000,000/$1,171.69
Number of Bonds = 8,534.71 or 8,535 bonds
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