Wilderness Adventure Vacation Company will issue 20-year, semiannual bonds with a 9.0% coupon rate and a $1,000 par value. Bonds of similar risk and maturity are currently selling to yield 10.0% in the marketplace
What is the market price of one of the firm's new bonds? If the investment banking firm working with the firm receives a best-efforts commission of 2.0% per bond sold, how much money will it make if the issue sells only 80% of the 5,000 bonds offered? Use a financial calculator to determine your answer.
What will be an ideal response?
Answer:
Mode: P/Y = 2, C/Y = 2
Input: 40 10.0 ? -45 -1000
Key: N I/Y PV PMT FV
CPT: 914.20
Commission = (P) × (Q) × (commission rate) = $914.20 × 5,000 × 0.02 = $73,136.
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