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Lower Borrowing Cost.

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(Comparing borrowing costs) Stephen Security has two financing alternative: (1) A publicly placed $50 million bond issues. 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 $500,00, 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)?

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This solution is comprised of detailed calculation of the cost of bond issuance and private placement with pension fund using excel and identifying the one that has lower borrowing cost.

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