Question

The Co needs $30 million to grow. They will sell 10yr, $1,000 face value bonds that...

The Co needs $30 million to grow. They will sell 10yr, $1,000 face value bonds that have 0% coupon. The expected YTM is 5 percent. How many bonds are needed to obtain the $30 million? Use annual compounding.
Hint: Solve for bond price, and use this price per bond to solve for the number of bonds to equal the dollar amount needed.

Multiple Choice

  • 259,317

  • 48,867

  • 24,433

  • 30,000

  • 129,658

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Homework Answers

Answer #1


Information provided:

Par value= future value= $1,000

Time= 10 years

Coupon rate= 0%

Yield to maturity= 5%

The question is solved by first computing the price of the bond.

The price of the bond is calculated by computing the present value.

Enter the below in a financial calculator to compute the present value:

FV= 1,000

N= 10

I/Y= 5

Press the CPT key and PV to compute the present value.

The value obtained is 613.91.

Therefore, the price of the bond is $613.91.

The number of bonds to be obtained:

= $30,000,000 / $613.91

= 48,867 bonds.

Hence, the answer is option b.

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