Reference no: EM132875458

Question - Metro city needs $200,000,000 to build a light-rail system. The city's financial advisors believe that it will be able to borrow money by issuing a 30year bond with an annual coupon rate of 4.8% that pays interest every 6 months. However, interests rates have been very volatile over the last year ranging from 4.6% to 5.1% for borrowers with Metro's credit rating. As a result, metro's town manager is concerned. If rates rise while the offering is in registration, metro will not get the $200 million it needs from the sale of its bonds. To make sure they will be able to raise enough money, Metro's financial advisors have recommended that Metro register a total of $250million worth of bonds. in the event that rates rise above 4.8% , metro will sell enough additional bonds to get the $200million they need for the rail system.

1) If rates rise to 4.95% on the day the bonds are sold, how much would metro receive from the sale of $200 million worth of bonds?

2) What is the par value of the additional bonds that metro must sell to raise the required $200 million.