Calculate the price of the bonds for dune industries ltd

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Reference no: EM132983862

Dune Industries Ltd is a large company listed on astock exchange. It is a diversified company withmanufacturing and trading divisions operating in a number of industries. Dune has recentlydeveloped 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 productto market. The company is seeking to raise $80 million in debt finance through a bond issue. Dunewould 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 centcoupon because it is not sure what rating its bonds would receive. BNC has advised that similarbonds 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. Required:

Problem (a) Calculate the price of the bonds, and the number of bonds Dune would need to issue, if thecompany 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: EM132983862

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