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    kk1224's Avatar
    kk1224 Posts: 3, Reputation: 1
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    #1

    Jan 20, 2009, 07:52 AM
    zero coupon bonds
    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's Avatar
    Curlyben Posts: 18,514, Reputation: 1860
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    #2

    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
    kk1224's Avatar
    kk1224 Posts: 3, Reputation: 1
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    #3

    Jan 20, 2009, 08:26 AM
    Quote Originally Posted by kk1224 View Post
    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
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