A mining company needs to raise $100 million in order to begin open pit mining of a coal seam.The company will fund this by issuing 30-year bonds with a face value of $1000 and a coupon rating of 6%,paid annually.The above table shows the yield to maturity for similar 30-year corporate bonds of different ratings.If the mining company's bonds receive a A rating,what will be their selling price?

Question

Quizplus · Accepted Answer

To find the selling price of the bonds, we need to use the bond pricing formula:

B = (C x (1 - (1 + r)^-n) / r) + (F / (1 + r)^n)

Where:
B = selling price of the bond
C = annual coupon payment
r = yield to maturity (YTM) in decimal form
n = number of years until maturity
F = face value of the bond

In this case, C = 60 (6% of $1000), r = 0.036 (the yield to maturity for A-rated bonds), n = 30, and F = $1000.

Plugging these values into the formula, we get:

B = (60 x (1 - (1 + 0.036)^-30) / 0.036) + (1000 / (1 + 0.036)^30) 
B = $1013.91

Therefore, the correct answer is C) $1013.91.

A Mining Company Needs to Raise $100 Million in Order