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    Bond Issued and Bond Flotation Costs

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    Company issued 10 year bonds yesterday at their par value of $1,000. Bonds pay $60 in interest every six months, and their price has remained at the $1,000 issue price. Company has determined an additional $2,000,000 is needed and will issue new 10 year, $1,000 par bonds that pay $40 in interest every six months. If both bonds provide investors with the same yield how many of the new bonds must be issued to raise $2,000,000. Ignore the day or two difference between the bonds issue dates and any bond flotation costs.

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    Solution Summary

    The solution determines how many new bonds need to be issued to raise $2,000,000.