A company intends to make a bond placement to raise XYZ amount of money. Bonds will mature in 5 years and will bear a coupon rate of 10%. Coupon will be pay semi-annuallu. At the same time, the company is approached by a bank, which promises to lend same amount of money at 13% a year. Assuming that the bonds and the loan fall into the same rick category and ignoring costs of bonds placement as well as any banking costs, what yield-to-maturity does the company plan to offer on its bonds?
10% 13% 12.6% 6.5% 10.25%
And why?
Can any one help me?