Reference no: EM132655969

Marlite Engineering would like to raise $10.0 million to invest in capital expenditures. The company plans to issue five-year bonds with face value of $1000 and a coupon rate of 6.57% (annual payments). The below table summarizes the yield to maturity for five-year (annual-payment) coupon corporate bonds of various ratings.

Rating         AAA          AA         A          BBB           BB
YTM          6.17%    6.33%   6.57%    6.94%    7.52%

Problem a) Assuming the bonds will be AA rated, what would their price be?(Round to the nearest cent.)

Problem b) How much of the total principal amount of these bonds must HMK issue to raise $ $10.0 million today, assuming the bonds are AA rated? (Because HMK cannot issue a fraction of a bond, assume that all fractions are rounded to the nearest whole number.) (Round up to the nearest integer.)

Problem c) What must the ratings of the bonds be for them to sell at par? (Select the best choice below.)

Option 1: For the bonds to sell at par, the coupon must equal the yield. Since the coupon is 6.57%, the yield must also be 6.57%, or A rated.

Option 2: For the bonds to sell at par, the coupon must equal the yield. Since the coupon is 6.98%, the yield must also be 6.98%, or BBB rated.

Option 3: For the bonds to sell at par, the coupon must equal the yield. Since the coupon is 6.57%, the yield must also be 6.57%, or BBB rated.

Option 4: For the bonds to sell at par, the coupon must equal the yield. Since the coupon is 6.36%, the yield must also be 6.36%, or A rated.