Answer and Explanation:
The computation is shown below:
Since the required rate of return equal to the coupon rate i.e 7.6% that means the bond issued at par
Therefore, the number of bond issued is
We assume the par value is $1,000
=$22,000,000 ÷ $1,000
= 22,000 Coupon bonds
And
Price of zero Coupon bond is
= $1,000 × (1.038)^-40
= $224.96
And, Number of coupon bond is
= 22,000,000 ÷ $224.96
= 97,795 zero Coupon bond
Now the payment made to bondholders in case of issuing the coupon bond is
= (Last Coupon payment + face value) × number of bond
= (1000 + 36) ×22,000
= $22,836,000 or 22.836 million
And in case of issuance of the zero coupon bond, the payment is
= Number of bonds × face value
= 97,795 × 1000
= 97,795,000 or 97.795 million
The time period doubles and the rate is half
