posted by Kevin on .
A loan of face value $30,000,000 is issued in bonds each face value $300. The bonds will be repaid with a bonus of 20%.
1/5th of the total capital will be repaid each year, the first payment being at the end of the 10th year. Coupons on the outstanding bonds are 7% p.a. paid half yearly [ in arrears]. Find the price at which the bonds should be issued if the loan issue is priced so that an investor who purchased the entire loan would earn 6%pa payable half yearly.