Bond Maturity and Yield
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JRJ Corporation recently issued 10-year bonds at a price of $1,000. These bonds pay $60 in interest each six months. Their price has remained stable since they were issued, i.e., they still sell for $1,000. Due to additional financing needs, the firm wishes to issue new bonds that would have a maturity of 10 years, a par value of $1,000, and pay $40 in interest every six months. If both bonds have the same yield, how many new bonds must JRJ issue to raise $2,000,000 cash?
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Solution Summary
This solution has step-by-step calculations to determine the price of the new bond and number of bonds issued by using the variables of PV of par value repayment and PV of interest payments.
Solution Preview
The yield on 10 year bonds = 6% as the bonds with 6% coupon are selling at ...
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