kk1224
Jan 20, 2009, 07:52 AM
Company x needs to raise $75 million they are issuing two types of bond traditional 10% semi and 10yr zero coupon bond.
Assuming a market rate of 10% what is the face value of the zero coupon bond ?
Curlyben
Jan 20, 2009, 07:56 AM
Thank you for taking the time to copy your homework to AMHD.
Please refer to this announcement: Ask Me Help Desk - Announcements in Forum : Homework Help (https://www.askmehelpdesk.com/finance-accounting/announcement-font-color-ff0000-u-b-read-first-expectations-homework-help-board-b-u-font.html)
kk1224
Jan 20, 2009, 08:26 AM
Company x needs to raise $75 million they are issuing two types of bond traditional 10% semi and 10yr zero coupon bond.
Assuming a market rate of 10% what is the face value of the zero coupon bond ?
The first part I completed - I think, I just need to know how to start the problem
see below
Present value of principle (maturity value)
5%
Maturity value of bonds after 10yrs, or 20 semiannual periods $75,000,000.00
Effective interes rate = 10% per yr or 5% per semi annual period $ 28,266,711.22
FV= k; n =20 I=5%
Present value of 20 interest pmts
Semiannual pmts 5% of 75,000,000. $3,750,000.00
Effective interest rate 10% or 5% per semi period $300,909.70
PMT= 5 n=20 I=5
$78,750,000.00 $28,567,620.92
Total Present value of bond $50,182,379.08
1-Jan Cash $50,182,379.08
Discount on Bond Payable $28,567,620.92
Bonds Payable $75,000,000.00