years ago, the State of Oklahoma issued $2,000,000 of 7% coupon, 20-year semiannual payment, tax-exempt bondsThe bonds had 5 years of call protection, but now the state can call the bonds if it chooses to do so The call premium would be 5% of the face amount Today 15-year, 5%, semiannual payment bonds can be sold at par, but flotation costs on this issue would be 2% What is the net present value of the refunding? Because these are tax-exempt bonds, taxes are not relevant.

Question

Quizplus · Accepted Answer

The net present value of the refunding is $278,606. The present value of the old bonds is $1,721,394. The present value of the new bonds is $1,999,998. The flotation costs are $39,999. The net present value is $278,606.

Years Ago, the State of Oklahoma Issued $2,000,000 of 7