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PilotLPTM [1.2K]
3 years ago
15

Crane Real Estate Company management is planning to fund a development project by issuing 10-year zero coupon bonds with a face

value of $1,000. Assuming semiannual compounding, what will be the price of these bonds if the appropriate discount rate is 13.0 percent
Business
1 answer:
xxTIMURxx [149]3 years ago
3 0

Answer:

Present value of zero coupon bond = $283

Explanation:

Provided that zero coupon bonds are to be issued.

In zero coupon bonds issue price is less than face value to meet the needs.

Interest rate = 13%

Duration = 10 years, Paid semiannually.

Thus periods = 20

Interest rate = 13 \times \frac{6}{12} = 6.5

Therefore, Present value factor @6.5% for 20 periods = 0.283

Therefore, Value of bond today = $1,000 \times 0.283 = $283

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