A County considers issuing $1,000,000 in bonds with a bond rate of 5% that mature and will be redeemed by the bond holders at face value in 20 years. It is expected to earn $900,000 in bond sales, which are all assumed to occur at time=0. The annual interest rate is 8%.
A) Determine if this is a good financial investment for the County.
B) If the $900,000 in bond sales is held at minimum value (i.e. constant), what is the economic advantage for the county if they increase the bond rate?
C) If the $900,000 in bond sales is held at minimum value (i.e. constant), what is one economic disadvantage for the county if they increase the bond rate?