Question

The Outlet needs to raise $3.2 million for an expansion project. The firm wants to raise this money by selling zero coupon bonds with a par value of $1,000 that mature in 20 years. The market yield on similar bonds is 7.8 percent. How many bonds must The Outlet sell to raise the money it needs?

Answer 1

Answer:

14,783.33 bonds

Explanation:

Given

Par value FV = $1000

n =20 * 2 =40

R= 7.80/2 = 3.90%

Price per bond:

price per bond :$PV = \frac{FV/}{(1+r)^n}$

     $= \frac{000}{(1+0.039)^{40}}$

      $= \frac{1000}{4.619786467}$

      = 216.46

No. of bonds to be issued = $\frac{amount to raise}{ price per bond}$

                                           $= \frac{3,200,000}{216.46}$  

                                            = 14,783.33 bonds