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Present value

You are a financial analyst in corporate treasury. The company is prepared to go forward with a $50 million bond issue. The term is 20 years, coupon 5.56 percent (paid semiannually), and $1,000 face value per bond. As is customary, on the day of the issue, the investment banker's call with any updated information on the market before the CFO gives the final OK to issue the bonds. The investment bankers just called to inform you that three other similar issues are being offered and to improve demand for your issue, recommend pricing the offer to yield 5.60 percent.

The CFO asks you what the cost would be to the company. You tell him you will get right back. What is the total cost to the company?

Solution Preview

You need to determine the present value of the bond issue. You can calculate that by using the PV formula ...

Solution Summary

The solution does a superb job of laying out step by step explanation to the problem. The solution is very well explained and uses detailed steps to explain the answer. The solution can be followed by anyone with a basic understanding of the concepts. Overall, an excellent response.