Micalah's Crafts needs $225,000 today to purchase some new equipment. They are planning on issuing 10-year bonds with a 6% coupon rate and semi-annual interest payments. The current
Market rate of interest is 6.5%. How many bonds must Micalah's Crafts sell to raise the money they
Need?

Question

Quizplus · Accepted Answer

To find the number of bonds needed, calculate the present value of a bond using the market rate (6.5%) as the discount rate. The bond's coupon rate is 6%, so it pays $30 every six months. The present value of these payments and the face value (assumed $1,000) must equal the market price. Solving this, the price is less than $1,000, so more than 225 bonds are needed. 234 bonds will cover the $225,000 needed.

Micalah's Crafts Needs $225,000 Today to Purchase Some New Equipment