Blackstone Energy is planning to issue two types of 25-year, non-callable bonds to raise a total of $6 million. First, 3,000 bonds with a 10% annual coupon rate will be sold at their $1,000 par value to raise $3 million. Second, original issue discount (OID) bonds, also with a 25-year maturity and a $1,000 par value, will be sold, but these bonds will have a nominal coupon of only 7.55%, also with annual payments. The OID bonds must be offered at a discount (i.e., below par) in order to provide investors with the same yield as the par bonds. How many OID bonds must the firm issue to raise the other $3 million? You may round your answer up or down to a whole number of bonds. Hint: Calculate the price of OID bonds (given the nominal coupon rate and yield of 10%), and divide that price into the $3 million. Your answer should be between 3150 and 4850, with no special characters.
Blackstone Energy is planning to issue two types of 25-year, non-callable bonds to raise a total of $6 million. First, 3,000 bonds with a 10% annual coupon rate will be sold at their $1,000 par value to raise $3 million. Second, original issue discount (OID) bonds, also with a 25-year maturity and a $1,000 par value, will be sold, but these bonds will have a nominal coupon of only 7.55%, also with annual payments. The OID bonds must be offered at a discount (i.e., below par) in order to provide investors with the same yield as the par bonds. How many OID bonds must the firm issue to raise the other $3 million? You may round your answer up or down to a whole number of bonds. Hint: Calculate the price of OID bonds (given the nominal coupon rate and yield of 10%), and divide that price into the $3 million. Your answer should be between 3150 and 4850, with no special characters.
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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![Blackstone Energy is planning to issue two types of 25-year, non-callable bonds to raise a total of $6 million.
First, 3,000 bonds with a 10% annual coupon rate will be sold at their $1,000 par value to raise $3 million.
Second, original issue discount (OID) bonds, also with a 25-year maturity and a $1,000 par value, will be
sold, but these bonds will have a nominal coupon of only 7.55%, also with annual payments. The OID bonds
must be offered at a discount (i.e., below par) in order to provide investors with the same yield as the par
bonds. How many OID bonds must the firm issue to raise the other $3 million? You may round your answer
up or down to a whole number of bonds.
Hint: Calculate the price of OID bonds (given the nominal coupon rate and yield of 10%), and divide that
price into the $3 million.
Your answer should be between 3150 and O, with no special haracters.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F50061f72-d587-4549-9904-89206beea343%2F43195e0e-2789-4b8f-b61c-51f26027fb55%2Fya27fzd_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Blackstone Energy is planning to issue two types of 25-year, non-callable bonds to raise a total of $6 million.
First, 3,000 bonds with a 10% annual coupon rate will be sold at their $1,000 par value to raise $3 million.
Second, original issue discount (OID) bonds, also with a 25-year maturity and a $1,000 par value, will be
sold, but these bonds will have a nominal coupon of only 7.55%, also with annual payments. The OID bonds
must be offered at a discount (i.e., below par) in order to provide investors with the same yield as the par
bonds. How many OID bonds must the firm issue to raise the other $3 million? You may round your answer
up or down to a whole number of bonds.
Hint: Calculate the price of OID bonds (given the nominal coupon rate and yield of 10%), and divide that
price into the $3 million.
Your answer should be between 3150 and O, with no special haracters.
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