Your firm wishes to raise 10,000,000 by either issuing regular coupon bonds or issuing zero coupon...

Your firm wishes to raise 10,000,000 by either issuing regular coupon bonds or issuing zero coupon bonds. The regular coupon bonds will have a 10% coupon rate. Both issues are expected to mature in 12 years,pay annual, and have a yield of 6%.

a.If they opted to go with regular bonds, what is the firms total repayment in year 12?

b.If they opted to go with zero coupon bonds, what is the firms total repayment in year 12?

please explain repayment portion ^^^

Solutions

Expert Solution

Price of the coupon bonds is calculated as below:

nper	12
PMT	100
Rate	6%
FV	1000

Selling price	1335.35	[ -pv(rate, nper, pmt,fv)]

a1. No of coupon bonds sold = 10,000,000 / $1335.35 = 7489 bonds

a2. Price of the zero coupon bonds = 1000 / ( 1+ 10%) ¹² = 318.63

No of zeroes to be issued = 10,000,000 / $318.63= 31384 bonds

b1. Repayment of coupon bonds = 7489 *(1000 + 1000* 10%) = 8,237,541

Reason: The coupon bonds are repaid along with the interest i.e. the coupon amount at the time of repayment . In this case they are repaid at a value of $1100 ( face value + interest of 100) during redemption.

b2. Repayment of zeroes =31384 * 1000 = 31,384,000

Reason: Zero coupon bonds are issued at a discount since they do not carry any interest while at the time of redemption they are paid in full at face value.

Any doubt please comment, If it has helped you, please give a thumbs up.

jeff jeffy answered 1 month ago

Next > < Previous

Related Solutions

Your company wants to raise $10 million by issuing 15-year zero-coupon bonds. If the yield to...

Your company wants to raise $10 million by issuing 15-year zero-coupon bonds. If the yield to maturity on the bonds will be 5% (annual compounded APR), what total face value amount of bonds must you issue? The total face value amount of bonds that you must issue is $ nothing. (Round to the nearest cent.)

Your firm is issuing 22-year zero coupon bonds with a 5% yield and pays annually. The...

Your firm is issuing 22-year zero coupon bonds with a 5% yield and pays annually. The goal is to raise $5,000,000. What is your company’s total repayment 22 years from now? 14,626.30 14,626,303.60 341.85 14,627,000.00 None of the above. Make sure to round at the very end of the problem and to the nearest hundredth.

Kintel, Inc., management wants to raise $1 million by issuing six-year zero coupon bonds with a...

Kintel, Inc., management wants to raise $1 million by issuing six-year zero coupon bonds with a face value of $1,000. The company’s investment banker states that investors would use an 10.27 percent discount rate to value such bonds. Assume semiannual coupon payments. At what price would these bonds sell in the marketplace? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and Bond price to 2 decimal places, e.g. 15.25) Market rate $ How many bonds would the firm have...

Crane, Inc., management wants to raise $1 million by issuing six-year zero coupon bonds with a...

Crane, Inc., management wants to raise $1 million by issuing six-year zero coupon bonds with a face value of $1,000. The company’s investment banker states that investors would use an 10.9 percent discount rate to value such bonds. Assume semiannual coupon payments. At what price would these bonds sell in the marketplace? (Round answer to 2 decimal places, e.g. 15.25) Market Rate? How many bonds would the firm have to issue to raise $1 million? (Round answer to 0 decimal...

Cyberdyne Systems is issuing a series of coupon bonds to raise $250M to fund research and...

Cyberdyne Systems is issuing a series of coupon bonds to raise $250M to fund research and development at its Skynet division. Each bond will have a face value of $1,000 and will mature in 10 years. The bonds will pay semi-annual coupons with a coupon rate of 6.5%. The yield to maturity on the bonds is 10%. What is the fair price for one of the bonds? A) $700.23 B) *$781.91 C) $876.54 D) $933.41 E) $1,000.00 The answer is...

Zero Coupon Bonds. Suppose your company needs to raise $40 million and you want to issue...

Zero Coupon Bonds. Suppose your company needs to raise $40 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 5.7 percent, and you’re evaluating two issue alternatives a 5.7 percent semiannual coupon bond and a zero coupon. Your company’s tax rate is 21 percent. a. How many of the coupon bonds would you need to issue to raise the $40 million? How many of the zeros would...

Your Company needs $10,000,000 for a plant expansion. You can obtain the funds by either issuing...

Your Company needs $10,000,000 for a plant expansion. You can obtain the funds by either issuing common stock or issuing bonds. Common stock is currently trading at $100 per share and the effective rate for bonds is 5%. What factors should be considered in making this decision? What decision will you make? Does your response change if stock is trading at $10,000 per share and interest rates are 15%? Your response must be a minimum of 50 words.

Your firm has issued ten-year zero-coupon bonds with a $1,000 face value. If the bonds are...

Your firm has issued ten-year zero-coupon bonds with a $1,000 face value. If the bonds are currently selling for $514.87. What is the yield to maturity?

Five years ago, Oleander, Inc. issued $10,000,000 worth of 15-year zero coupon bonds. The bonds carry...

Five years ago, Oleander, Inc. issued $10,000,000 worth of 15-year zero coupon bonds. The bonds carry a $5,000 par value. If the market prices the bonds to yield 5.5%, what is the current value of an Oleander bond? What was the value of the bond three years ago, assuming the required rate of return was the same as today? Please explain how to work this on a financial calculator.

Marko needs to raise capital through a zero-coupon bond debtoffering. If the bonds will have...

Marko needs to raise capital through a zero-coupon bond debt offering. If the bonds will have 12 years to maturity and the rate of return on a bond in Marko's risk class is 11 percent, what will be the selling price of the bond?When i type this into a calculator

Subjects