Question

14

Happy Corporation needs to raise $2.8 million for expansion. The firm wants to raise this money by selling 20-year, zero-coupon bonds with a par value of $1,000. The market yield on similar bonds is 6.49 percent. How many bonds must the company sell to raise the money it needs? Assume semiannual compounding.

Group of answer choices

A. 2,800 bonds

B. 9,450 bonds

C. 11,508 bonds

D. 10,315 bonds

E. 10,044 bonds

Answer 1

As per the details given in the question-
Correct Answer is option E
Enter the stroke in the financial calculator -
FV = 1000
N = 40 (20*2 = 40 , interest is paid semiannually)
PMT = 0
I/Y = 3.245(6.49/2 = 3.245)
CPT -PV = 278.77

Total amount raise = $2800000
Present value of bonds = 278.77
No of bonds company issue = 2800000 / 278.77
Bonds issue = 10044

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