Question

A company has decided to issue 20-year zero-coupon bonds to raise funds. The required return on...

A company has decided to issue 20-year zero-coupon bonds to raise funds. The required return on the bonds will be 6% and face value will be $1,000. What will these bonds sell for at issuance?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1
Computation of Issue Price of Zero Coupon Bond:
Time to Maturity = 20 Years
Face Value = $ 1,000
Required Return = 6%
Issue Price = Present Value of Future Expected Payments
Issue Price = Present Value of Redemption Value(in case of a Zero Coupon Bond, as no Coupon Payments)
Issue Price = $1,000 * PV(6%, 20 Years)
Issue Price = $1,000 / (1+0.06)^20
Issue Price = $1,000 / (1.06^20)
Issue Price = $1,000 / 3.2071
Issue Price = $ 311.80
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Tesla Corporation needs to raise funds to finance a plant expansion, and it has decided to...
Tesla Corporation needs to raise funds to finance a plant expansion, and it has decided to issue 30-year zero-coupon bonds to raise the money. The required return on the bonds will be 9 percent. a. What will these bonds sell for at issuance b.  Using the IRS amortization rule, what interest deduction can the company take on these bonds in the first year? In the last year? c. Interest deduction. Using the straight-line method, what interest deduction can the company take...
d) The company is planning to issue 10-year semi-annual coupon bonds with a coupon rate of...
d) The company is planning to issue 10-year semi-annual coupon bonds with a coupon rate of 6% and a face value of $1,000. The effective annual yield to maturity of investors is expected to be 8% per annum. Calculate the required number (expressed in integer) of semi-annual coupon bonds to raise $20 million. e) Alternatively, XYZ Ltd is looking into issuing 15-year zero-coupon bonds with a face value of $1,000. The desired nominal yield to maturity of investors is expected...
BBT Inc. needs to raise funds for a project. The company can choose to issue either...
BBT Inc. needs to raise funds for a project. The company can choose to issue either zero-coupon bonds or semi-annual coupon bonds. In either case the bonds would have the same YTM, a 20-year maturity and a par value of $1,000. If the company issues the zero-coupon bonds, they would sell for $153.81. If it issues the semi-annual coupon bonds, they would sell for $756.32. What annual coupon rate is the company planning to offer on the coupon bonds? (rounded...
28.Zero Coupon Bonds Suppose your company needs to raise $50 million and you want to issue...
28.Zero Coupon Bonds Suppose your company needs to raise $50 million and you want to issue 30-year bonds for this purpose. Assume the required return on your bond issue will be 7 percent and you’re evaluating two issue alternatives: a semiannual coupon bond with a 7 percent coupon rate and a zero-coupon bond. Your company’s tax rate is 21 percent. Both bonds would have a par value of $1,000. a. How many of the coupon bonds would you need to...
A company has an outstanding issue of $1,000 face value bonds with a 9.5% annual coupon...
A company has an outstanding issue of $1,000 face value bonds with a 9.5% annual coupon and 20 years remaining until maturity. The bonds are currently selling at a price of 90 (90% of face value). An investment bank has advised that a new 20-year issue could be sold for a flotation cost of 5% of face value. The company is in the 35% tax bracket. a. Calculate investors’ required rate of return today. b. What annual coupon would have...
Suppose your company needs to raise $36 million and you want to issue 20-year bonds for...
Suppose your company needs to raise $36 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 8.5 percent, and you’re evaluating two issue alternatives: an 8.5 percent semiannual coupon bond and a zero coupon bond. Your company’s tax rate is 35 percent. Both bonds would have a face value of $1,000.    a. How many of the coupon bonds would you need to issue to raise the $36...
4. King Enterprises wants to issue 20-year, $1,000 par value zero-coupon bonds. If the yield on...
4. King Enterprises wants to issue 20-year, $1,000 par value zero-coupon bonds. If the yield on bonds with similar risk is currently 15%, how much will one of these bonds sell for?
A company wants to raise $600,000 by issuing zero coupon bonds. The bonds have a face...
A company wants to raise $600,000 by issuing zero coupon bonds. The bonds have a face value of $1,000 and will mature in 8 years. The issue price gives potential investors a yield to maturity of 3% p.a. (nominal). Assume comparable-risk coupon bonds normally pay semi-annual coupons Calculate the issue price per bond. (Round your answer to 2 decimal places. Do not include the $ symbol. Do not use comma separators. E.g. 1234.56) Answer    How many bonds should the...
Suppose your company needs to raise $40 million and you want to issue 20-year bonds for...
Suppose your company needs to raise $40 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 5.7 percent, and you’re evaluating two issue alternatives: a 5.7 percent semiannual coupon bond and a zero coupon bond. Your company’s tax rate is 21 percent. a. How many of the coupon bonds would you need to issue to raise the $40 million? How many of the zeroes would you need to...
Suppose your company needs to raise $53 million and you want to issue 20-year bonds for...
Suppose your company needs to raise $53 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 5.3 percent, and you’re evaluating two issue alternatives: a semiannual coupon bond with a coupon rate of 5.3 percent, and a zero coupon bond. Your company’s tax rate is 21 percent. Both bonds will have a par value of $1,000. a-1. How many of the coupon bonds would you need to issue...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT