Comparing borrowing costs
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A company 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)?
Please show all equations used in detail
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This solution is comprised of a detailed explanation to answer which alternative has the lower cost (annual percentage yield).
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What Does Annual Percentage Yield - APY Mean?
The effective annual rate of return taking ...
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