HELP Finance

[Please-Help1]

Good Corporation, Inc. (GPI) sold $1,000,000 of 12 percent, 30-year, semiannual payment bonds 15 years ago. The bonds have a sinking fund provision which requires GPI to redeem 5 percent of the original face value of the issue each year ($50,000), beginning in Year 11. To date, 25 percent of the issue has been retired. The company can either call bonds at par for sinking fund purposes or purchase bonds on the open market, spending sufficient money to redeem 5 percent of the original face value each year. If the yield to maturity (15 years remaining) on the bonds is currently 14 percent, calculate the amount of money GPI must put up to satisfy the sinking fund provision for this year.

[dr b]

although this would be better posted in business & finance, or "do my homework for me":


1) Since the YTM is 14%, you know the 12% coupon bond is selling at a discount. Therefore the firm will not call at par, but will buy the bonds for less than par in the open market.

2) Figure out the market price per bond by discounting the remaining $60 interest payments (15 years, or 30 semi-annual payments) and the (presumed) $1000 face value. The discount rate is 7% (half of 14%).

3) The firm needs to retire 50 bonds (50 bonds x $1000 face = $50,000 face value retired). So, multiply your bond price from (2) by 50, and that will be the $ required to buy the bonds in the open market.

[Please-Help1]

Thanks a bunch!!!