Question - As a result of an asset expansion, Delta Corporation needs to raise $100 million. Delta can issue one of two types of bonds; a zero coupon bond or a debenture. Either bond will mature in 20 years. The zero coupon bond has a yield to maturity rate of 10 percent. The debenture has a contract rate of 6 percent and a yield to maturity of 8 percent. Any interest payments made by delta will be on a semiannual basis.
Required:
a) Determine the proceeds from the sale of each type of bond. Discuss the results.
b) Explain the impact on the yield to maturity, if Delta was to include any of the following in the bond offerings; a sinking find provision, a call provision, or security for the bond.