Question

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 company issue to raise enough money? (Do not include unit. Do not use comma separators.) (1 mark)

Answer

Answer #1

Q1: Zero coupon bonds are the bonds that are issued at the discount and redeemable at the par value, the difference between the two is the yield of the investor.

Value of zero coupon bonds = Face value / ( 1 + Yield per period) ^ Number of periods

= 1000 / ( 1 + 3%/2)^8*2

= 1000 / (1.015)^16

= 1000 / 1.26898554765

**Value of zero coupon bond = 788.0310**

B) Money to be raised = Amount needed to be raised / Value of zero coupon bond

= 600,000 / 788.0310

**Number of bonds =761**

A company needs to raise $1,800,000 (this is the gross amount
before any cost comes off) for a business expansion. The company
decides to issue shares to the market at $6 per share. The shares
are underwritten at $4.8 per share. The out-of-pocket expenses are
$150,000 in total. The market share price increased by 15% right
after the IPO.
a) Calculate the number of shares sold in the share offering. Do
not include the unit. Do not use comma separators....

Ivanhoe, Inc., management wants to raise $1 million by issuing
six-year zero coupon bonds with a face value of $1,000. The
company’s investment banker states that investors would use an 10.4
percent discount rate to value such bonds. Assume semiannual coupon
payments.
At what price would these bonds sell in the marketplace?
(Round answer to 2 decimal places, e.g.
15.25)
Market rate
$
How many bonds would the firm have to issue to raise $1 million?
(Round answer to 0...

Kintel, Inc., management wants to raise $1 million by issuing
six-year zero coupon bonds with a face value of $1,000. The
company’s investment banker states that investors would use an
10.32 percent discount rate to value such bonds. Assume semiannual
coupon payments.
At what price would these bonds sell in the marketplace?
(Round intermediate calculations to 4 decimal places,
e.g. 1.2514 and Bond price to 2 decimal places, e.g.
15.25)
Market rate
$
How many bonds would the firm have...

With celebrity bonds, celebrities raise money by issuing bonds
to investors. The royalties from sales of the music are used to pay
interest and principal on the bonds. In April of 2009, EMI
announced that it inherited to securitize its back catalogue with
the help of the Bank of Scotland. The bond was issued with a coupon
rate of 6.85% and will mature on this day 40 years from now. The
yield on the bond issue is currently 6.15%. At...

With celebrity bonds, celebrities raise money by issuing bonds
to investors. The royalties from sales of the music are used to pay
interest and principal on the bonds. In April of 2009, EMI
announced that it intended to securitize its back catalogue with
the help of the Bank of Scotland. The bond was issued with a coupon
rate of 6.75% and will mature on this day 21
years from now. The yield on the bond issue is currently
6.3%.
At...

Suppose a firm wants to raise $12.7 million by issuing bonds. It
plans to issue a bond with the following characteristics:
Coupon rate: 6% APR
Yield to maturity: 7.6% APR
Coupons paid out semi-annually
Matures 20 years away from today
Face Value = $1,000
How many bonds does the firm need to issue? Round
to 2nd decimal point.

With celebrity bonds, celebrities raise money by issuing bonds
to investors. The royalties from sales of the music are used to pay
interest and principal on the bonds. In April of 2009, EMI
announced that it intended to securitize its back catalogue with
the help of the Bank of Scotland. The bond was issued with a coupon
rate of 6.5% and will mature on this day 37 years from now. The
yield on the bond issue is currently 6.4%. At...

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...

Ontario wants to raise $3,000,000 by
issuing bonds. The coupon rate is set at 8% per annum with
semi-annual payments. However, market interest rates have risen to
9%. If the bonds mature in 20 years, what is the current worth of
the bonds?
a)
3,000,000(P/F,4.0%,40) + 120,000(P/A,4.0%,40)
b)
3,000,000(P/F,4.5%,40) + 120,000(P/A,4.5%,40)
c) 3,000,000 +
120,000(P/A,4.5%,40)
d)
3,000,000(F/P,4.5%,40) + 120,000(F/A,4.5%,40)

Caspian Sea Drinks needs to raise $21.00 million by issuing
bonds. It plans to issue a 18.00 year semi-annual pay bond that has
a coupon rate of 5.02%. The yield to maturity on the bond is
expected to be 4.76%. How many bonds must Caspian Sea issue? (Note:
Your answer may not be a whole number. In reality, a company would
not issue part of a bond.)

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