Question

Blossom Information Systems management is planning to issue 10-year bonds. The going market yield for such bonds is 8.130 percent. Assume that coupon payments will be made semiannually. Management is trying to decide between issuing an 8 percent coupon bond or a zero coupon bond. Blossom needs to raise $1 million. Collapse question part (a1) What will be the price of an 8 percent coupon bond? (Round answer to 2 decimal places, e.g 15.25.)

Answer 1

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =10x2

Bond Price =∑ [(8*1000/200)/(1 + 8.13/200)^k]     +   1000/(1 + 8.13/200)^10x2

k=1

Bond Price = 991.22

Number of bonds to issue = amount to raise/price = 1000000/991.22=1008.857 ~1009