How the market views company e debt

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Company X would like to raise $10M to invest in capital expenditures. The company plans to issue five year bonds with a face value of $1000 and coupon rate of 6.5% withannual payments. The following table summarizes the yield to maturity for five-year coupon corporate bonds of various ratings.Rating YTM for AAA AA A BBB are 6.20% 6.30% 6.50% 6.90%

(a) Management thinks the bonds will be rated AA. If they are correct, and assuming no transaction costs, how many bonds will they have to issue in order to raise the required capital?(Since you cannot issue a fraction of a bond, round up to the nearest whole number.) What would be the total face value of this debt?

(b) Suppose that the actual issue price in the market is $983.56. What does this tell you about how the market views Company E's debt?

Reference no: EM131417792

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