Question

Deltona Motors just issued 230,000 zero-coupon bonds. These bonds mature in 18 years, have a par value of $1,000, and have a yield to maturity of 5.9 percent. What is the approximate total amount of money the company raised from issuing these bonds? Assume semiannual compounding.

Answer 1

Answer:

$81,959,737

Explanation:

Zero coupon bond is the bond which does not offer any interest payment. It is issued on deep discount price and Traded in the market on discounted price.

As per given data:

Numbers of Bonds = 230,000

Numbers of years to mature = n = 18 years

Face value = F = 230,000 x $1,000 = $230,000,000

YTM = 5.9%

Value of zero coupon bond = Face value / ( 1 + YTM )^n

Value of zero coupon bond = $230,000,000 / ( 1 + 5.9% )^18

Value of zero coupon bond = $230,000,000 / ( 1 + 5.9% )^18

Value of zero coupon bond = $81,959,737