Calculate the price of the bonds and number of bonds dune

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Reference no: EM132974109

Dune Industries Ltd is a large company listed on a stock exchange. It is a diversified company with manufacturing and trading divisions operating in a number of industries. Dune has recently developed a new product which is the first of its kind and which is expected to make a significant contribution to the company's future earnings. Dune needs additional finance to bring the product to market. The company is seeking to raise $80 million in debt finance through a bond issue. Dune would like to issue bonds with a face value of $1000, a maturity of 20 years and an 8 per cent annual coupon rate. Interest would be paid semi-annually. Dune is considering offering an 8 per cent coupon because it is not sure what rating its bonds would receive. BNC has advised that similar bonds with an AA rating currently have a yield to maturity of 7.5 per cent and similar bonds with an A rating have a yield to maturity of 8.5 per cent.

Problem (a) Calculate the price of the bonds, and the number of bonds Dune would need to issue, if the company was to receive an AA rating

Problem (b) Calculate the price of the bonds, and the number of bonds Dune would need to issue, if the company was to receive an A rating

Reference no: EM132974109

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