Emery Douglas R. Finnerty John D. & Stowe John D. (2007)Individual assignment: T

Emery Douglas R. Finnerty John D. & Stowe John D. (2007)Individual assignment: Text Problem Set IV:Chapter 20 ProblemsA2. (Comparing Borrowing Costs)Stephens
Security has two financing alternatives: (1) A publicly placed $50
million bond issue. Issuance costs are $1 million the bond has a 9%
coupon paid semiannually and the bond has a 20-year life. (2) A $50
million private placement with a large pension fund. Issuance costs are
$500000 the bond has a 9.25% annual coupon and the bond has a 20-year
life. Which alternative has the lower cost (annual percentage yield)?