Blackstone Energy is planning to issue two types of 25-year, non-callable bonds to raise a total of $6 million. First, 3,000 bonds with a 10% annual coupon rate will be sold at their $1,000 par value to raise $3 million. Second, original issue discount (OID) bonds, also with a 25-year maturity and a $1,000 par value, will be sold, but these bonds will have a nominal coupon of only 7.55%, also with annual payments. The OID bonds must be offered at a discount (i.e., below par) in order to provide investors with the same yield as the par bonds. How many OID bonds must the firm issue to raise the other $3 million? You may round your answer up or down to a whole number of bonds. Hint: Calculate the price of OID bonds (given the nominal coupon rate and yield of 10%), and divide that price into the $3 million. Your answer should be between 3150 and 4850, with no special characters.
Blackstone Energy is planning to issue two types of 25-year, non-callable bonds to raise a total of $6 million. First, 3,000 bonds with a 10% annual coupon rate will be sold at their $1,000 par value to raise $3 million. Second, original issue discount (OID) bonds, also with a 25-year maturity and a $1,000 par value, will be sold, but these bonds will have a nominal coupon of only 7.55%, also with annual payments. The OID bonds must be offered at a discount (i.e., below par) in order to provide investors with the same yield as the par bonds. How many OID bonds must the firm issue to raise the other $3 million? You may round your answer up or down to a whole number of bonds. Hint: Calculate the price of OID bonds (given the nominal coupon rate and yield of 10%), and divide that price into the $3 million. Your answer should be between 3150 and 4850, with no special characters.
Chapter6: Fixed-income Securities: Characteristics And Valuation
Section: Chapter Questions
Problem 17P
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Transcribed Image Text:Blackstone Energy is planning to issue two types of 25-year, non-callable bonds to raise a total of $6 million.
First, 3,000 bonds with a 10% annual coupon rate will be sold at their $1,000 par value to raise $3 million.
Second, original issue discount (OID) bonds, also with a 25-year maturity and a $1,000 par value, will be
sold, but these bonds will have a nominal coupon of only 7.55%, also with annual payments. The OID bonds
must be offered at a discount (i.e., below par) in order to provide investors with the same yield as the par
bonds. How many OID bonds must the firm issue to raise the other $3 million? You may round your answer
up or down to a whole number of bonds.
Hint: Calculate the price of OID bonds (given the nominal coupon rate and yield of 10%), and divide that
price into the $3 million.
Your answer should be between 3150 and O, with no special haracters.
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