Moon Software Inc

question 68

Multiple Choice

Moon Software Inc.is planning to issue two types of 25-year,noncallable bonds to raise a total of $6 million,$3 million from each type of bond.First,3,000 bonds with a 10% semiannual coupon will be sold at their $1,000 par value to raise $3,000,000.These are called "par" bonds.Second,Original Issue Discount (OID) bonds,also with a 25-year maturity and a $1,000 par value,will be sold,but these bonds will have a semiannual coupon of only 6.75%.The OID bonds must be offered at below par in order to provide investors with the same effective yield as the par bonds.How many OID bonds must the firm issue to raise $3,000,000? Disregard flotation costs,and round your final answer up to a whole number of bonds.

• A) 3,370
• B) 4,906
• C) 3,285
• D) 4,479
• E) 4,266

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Definitions:

Hydrogen Bonds

Weak bonds between partially positive hydrogen atoms and partially negative atoms (such as oxygen or nitrogen) in different molecules or within the same molecule.

Atomic Mass

The mass of an atom, typically expressed in atomic mass units (amu), representing the total mass of protons, neutrons, and electrons in the atom.

Ionic Bond

A chemical bond that occurs when two ions of opposite charges are linked together by transferring one or more electrons from one atom to the other.

Electrons

Subatomic particles with a negative electric charge, found in all atoms and acting as the primary carrier of electricity in solids.