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 ?

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Quote:

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Originally Posted by kk1224

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 ?

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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