The introduction of certi

The introduction of certi

The introduction of certified organic products will be expensive. Preliminary estimates indicate that Bay Path will need to invest $80 million in production and processing facilities. The company hopes to finance the expansion by using $30 million of its own liquid assets and $50 million in new debt in the form of bonds with a maturity if 20 years. Bay Path expects the bonds to receive a rating of Aa1 or better from Moody’s. For all questions, assume par value is $1,000 and semi-annual bond interest payment.Question: A company in a line of business similar to Bay Path’s recently issued at par noncallable bonds with a coupon rate of 5.8% and a maturity of 20 years. Moody’s rated the bonds Aa1 and Standard & Poor awarded them AA. What rate of return (yield to maturity) did investors require on these bonds if the bonds sold at par value? Please show how you came up with the answer. Thanks

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