Valles Global University (VGU) has decided to build a dormitory on campus for 1000 students that includes a spa and cafeteria for students at their urban New Jerseycampus. VGU has estimated construction costs of $75 million. A wealthy alumna offers to kick in 25 million dollars and VGU will sell bonds to raise the rest. The VGUbonds are five-year bonds and have a par value of $1000 and pay 6% compounded semi-annually. Assume the VGU bonds are all sold. VGU uses an investment rateof 4% per year.1. Develop a revenue plan that will allow VGU to pay the interest and principal of the bonds. (How much revenue do they need per period to pay the interest andthe $50,000,000 back?)2. Suppose similar bonds are currently paying 10% in the bond market. How much would VGU receive per bond? Will they be able to build their dormitory with thisbond sale? Explain your answer.

Bond valuation refers to a method which is used to compute the current value or present value (PV)…

1. Develop a revenue plan that will allow VGU to pay the interest and principal of the bonds. (How much revenue do they need per period to pay the interest and the $50,000,000 back?) 2. Suppose similar bonds are currently paying 10% in the bond market. How much would VGU receive per bond? Will they be able to build their dormitory with this bond sale? Explain your answer.

1. Develop a revenue plan that will allow VGU to pay the interest and principal of the bonds. (How much revenue do they need per period to pay the interest and the $50,000,000 back?) 2. Suppose similar bonds are currently paying 10% in the bond market. How much would VGU receive per bond? Will they be able to build their dormitory with this bond sale? Explain your answer.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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