solution

Alsip Glass and Mirror is about to issue a bond with the help of

Becker Investment Bank. The bond will be a twenty-year, semiannual bond with

a 7% coupon rate and a $5,000 par value. A rating agency has given the bond an

AA1 rating. Bonds with this maturity and this rating are currently selling to yield

8.5%. Alsip Glass and Mirror has requested authorization from the SEC to sell

2,000 of these bonds. If Becker Investment Bank is receiving a 2.5% commission

on the sale of these bonds, what will the total proceeds be for Alsip? What is the

cost of these bonds to Alsip in terms of cost of capital?

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