ABC Corp, is thinking about recalling P30 million of 15 year, P1,000 par value bonds, that were issued ten years ago. The bonds carry a coupon rate of 7.8% and have a call price of a P1,110. Initially the bonds generated total proceeds of P28.65 million and the flotation costs were P500,000. ABC Corp. wants to sell P30 million of 5 year, P1,000 par value bonds with a 5.8% coupon rate to retire the old bonds. The flotation costs on the new bond issue are estimated to be P525,000. Due to having issue the new bonds before the old bonds can be retired the company expects a period of 3 months were they have to pay interest on the old and the new bonds. Assume a tax rate of 30%. What is the call premium per bond? *
ABC Corp, is thinking about recalling P30 million of 15 year, P1,000 par value bonds, that were issued ten years ago. The bonds carry a coupon rate of 7.8% and have a call price of a P1,110. Initially the bonds generated total proceeds of P28.65 million and the flotation costs were P500,000. ABC Corp. wants to sell P30 million of 5 year, P1,000 par value bonds with a 5.8% coupon rate to retire the old bonds. The flotation costs on the new bond issue are estimated to be P525,000. Due to having issue the new bonds before the old bonds can be retired the company expects a period of 3 months were they have to pay interest on the old and the new bonds. Assume a tax rate of 30%. What is the call premium per bond? *
Chapter6: Fixed-income Securities: Characteristics And Valuation
Section: Chapter Questions
Problem 17P
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Question
ABC Corp, is thinking about
recalling P30 million of 15 year,
P1,000 par value bonds , that
were issued ten years ago. The
bonds carry a coupon rate of
7.8% and have a call price of
a
P1,110. Initially the bonds
generated total proceeds of
P28.65 million and the flotation
costs were P500,000. ABC
Corp. wants to sell P30 million
of 5 year, P1,000 par value
bonds with a 5.8% coupon rate
to retire the old bonds. The
flotation costs on the new
bond issue are estimated to be
P525,000. Due to having issue
the new bonds before the old
bonds can be retired the
company expects a period of 3
months were they have to pay
interest on the old and the
new bonds. Assume a tax rate
of 30%. What is the call
premium per bond? *
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