To finance its budget deficit for the fiscal year 2018, Spain decided to issue an euro bond to raise $3 Billion. The finance minister received approval to issue the bond with a coupon rate of 10% per year with semi annual payments with a 30 year maturity date. At the time the bond was issued, the market conditions had changed and the market interest rate had risen to 12% per year. If the bond was under subscribed and only 90% of the original bond amount was sold in the market:
1- Draw an annuity cash flow diagram for the bond.
2- How much did Spain raise from the bond sale?
3- If Spain decides to buy all the bonds back with a promise of paying an effective annual interest rate of 14.49% after 15 years of the sale, how much will Spain spend on buying all the bonds for?
This is engineering economic analysis
To finance its budget deficit for the fiscal year 2018, Spain decided to issue an euro...
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