Consolidated Insurance wants to raise $35 million in order to build a new headquarters.The company will fund this by issuing 10-year bonds with a face value of $1,000 and a coupon rating of 6.5%,paid semi-annually.The above table shows the yield to maturity for similar 10-year corporate bonds of different ratings.Which of the following is closest to how many more bonds Consolidated Insurance would have to sell to raise this money if their bonds received an A rating rather than an AA rating?

Question

Quizplus · Accepted Answer

C) Calculate the PV of the bond with FV = $1000, YTM = 3.2%, PMT = 32.5, and N = 20, which = $1007.30; thus, the number of bonds sold if AA rating = 34,746.24;
Calculate the PV of the bond with FV = $1000, YTM = 3.35%, PMT = 32.5, and N = 20, which = $985.59; thus, the number of bonds sold if A rating = 35,511.62;
hence, the difference = 765.

Consolidated Insurance Wants to Raise $35 Million in Order to Build