Page 258 M/C Problems Chapter 7: Bonds
91. Kebt Corporation’s Class Semi bonds have a 12-year maturity and an
8.75% coupon paid semiannually (4.375% each 6 months), and those bonds
sell at their $1,000 par value. The firm’s Class Ann bonds have the
same risk, maturity, nominal interest rate, and par value, but these
bonds pay interest annually. Neither bond is callable. At what price
should the annual payment bond sell?
a. $ 937.56
b. $ 961.60
c. $ 986.25
d. $1,010.91
e. $1,036.18
92. Moon Software Inc. is planning to issue two types of 25-year,
noncallable bonds to raise a total of $6 million, $3 million from each
type of bond. First, 3,000 bonds with a 10% semiannual coupon will be
sold at their $1,000 par value to raise $3,000,000. These are called
“par” bonds. Second, Original Issue Discount (OID) bonds, also with a
25-year maturity and a $1,000 par value, will be sold, but these bonds
will have a semiannual coupon of only 6.25%. The OID bonds must be
offered at below par in order to provide investors with the same
effective yield as the par bonds. How many OID bonds must the firm
issue to raise $3,000,000? Disregard flotation costs, and round your
final answer up to a whole number of bonds.
a. 4,228
b. 4,337
c. 4,448
d. 4,562
e. 4,676
CHAPTER 7
ANSWERS AND SOLUTIONS
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