Question

"Bronson Manufacturing is planning to issue $12 million in bonds. Based on a poll of potential investors, they have the highest chance of raising the funds they need with one of four sets of bond characteristics. Which option would cost them the MOST in total interest over the life of the bond

Answer 1

C.eight-year bond with 5.5% annual interest rate

Step-by-step explanation:

The computation of the total options under each option is as follows:

As we assume the par value be $1,000

For Option A

Total interest

= 9.5% × $1,000 × 3 years

= $285

For Option B

Total interest is

= 7.25% × $1,000 × 4 years

= $290

For Option C

Total interest is

= 5.5% × $1,000 × 8 years

= $440

For Option D

Total interest is

= 6% × $1,000 × 6 years

= $360

As we can see that the option C contains high value of the total interest. So the same is to be selected