As a financial manager, you need to raise capital for your company. Your bank will not give you the terms needed to initiate a project. You need to raise $10,000,000.00 and don't want to pay more than 6% annual interest (paid bi-annually) so you decide to issue bonds (face value of $1,000 each) that mature in 20 years. Five years later, your company's project has done much better than expected and would like to re-purchase the bonds on the secondary market in an attempt to pay off the debt early. During this time interest rates have fallen from 6% to 4%. How much will it cost the company to pay off their debt at this time?
| Amount |
10000000 |
| Face value |
1000 |
| No of bonds |
10000 |
| Time |
20 |
| Coupon |
6% |
| Interest rate |
6% |
|
|
| Time left |
15 |
| Interest rate |
4% |
| Value per bond |
$ 1,223.96 |
| Cost |
$ 12,239,645.56 |