The interest rate on a2 rated bonds was now 6 30million


The interest rate on a2 rated bonds was now 6%. $30million 15yr bond issue is outstanding and was initially issued at 9% 5yrs ago. Barton is considering refunding the bond issue. old issue call premium of 8%, underwriting cost on old issue had been 3% par and the new issue would be 5% of par. tax rate would be 30% and a 4% discount rate would be applied for the refunding decision. The new bond would have a 10yr life. Before barton used the 8% call provision to require the old bonds he wanted to make sure he could not buy them back cheaper in the open market. 

a. compute price of old bonds in open market, using the valuation procedures detemine the price of a single $1000 par value bond

b. compare the price in part a to the 8% call premium over par value. which is best term for reacquiring the old bonds.

c. do the standard bond refunding analysis , is refunding financially feasible

d. in terms of refunding decision how should barton be influenced if he thinks interest rates might go down even more

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Financial Management: The interest rate on a2 rated bonds was now 6 30million
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