Reinegar Corporation is planning two new issues of 25-year bonds.Bond Par will be sold at its $1, 000 par value, and it will have a 10% semiannual coupon.Bond OID will be an Original Issue Discount bond, and it will also have a 25-year maturity and a $1, 000 par value, but its semiannual coupon will be only 6.25%.If both bonds are to provide investors with the same effective yield, how many of the OID bonds must Reinegar issue to raise $3, 000, 000? Disregard flotation costs, and round your final answer up to a whole number of bonds.

Question

Quizplus · Accepted Answer

The par bond has a coupon rate of 10% and a periodic rate of 5%, and it sells at par.Therefore, the going nominal rate must be 10%.The OID bond must provide the same EFF%, because it is equally risky.Therefore, it must be evaluated with the parameters shown below to find its price, which is then used to find the number of bonds issued. 11ea1b84_8b95_93da_a54a_3b671b3992bd_TB3581_00

Reinegar Corporation Is Planning Two New Issues of 25-Year Bonds