Three years ago, PurpX issued 10,000 bonds with the following specifications: 10-year bond with 10%...
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Three years ago, PurpX issued 10,000 bonds with the following specifications: 10-year bond with 10% coupon rate and $1000 face value. PurpX made its third coupon payment today with 7 more coupon payments as well as the face value left to be paid. The current market rate is 6%. One board member suggests to take advantage of the low rates and purchase back all the bonds to reissue them at 6% coupon rate.
How much does PurpX need today to purchase back all of its bonds?
How many new 7-year, 6%-coupon, $1,000-face-value bond does PurpX need to issue to finance this purchase?
Would you be supporting the board member who makes this suggestion? Why or why not?
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