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 (annual percentage yield)?© BrainMass Inc. brainmass.com June 3, 2020, 11:09 pm ad1c9bdddf
The solution gives a concise explanation of how to compare the alternatives set out to a fictional company by looking at their YTM on bonds issues in an attached spreadsheet.