Question

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)

How many bonds should the company issue to raise enough money? (Do not include unit. Do not use comma separators.) (1 mark)

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