Pinnacle Consulting is planning to issue a zero-coupon bond with a 10-year maturity at a yield...

Pinnacle Consulting is planning to issue a zero-coupon bond with a 10-year maturity at a yield to maturity of 6.35%. Pinnacle needs to raise $12,000,000. To the nearest thousand, how many bonds do they need to issue?

*a zero-coupon bond pays no coupon interest payments, but is still calculated as if they pay semi-annually* State your answer in millions, e.g., 12,849,000 not 12,849

Solutions

Expert Solution

Assuming face value to be 1000

Number of periods = 10 * 2 = 20

Semi annual coupon = 6.35% / 2 = 3.175%

Price = Face value / (1 + r)^n

Price = 1000 / (1 + 0.03175)^20

Price = 1000 / 1.868485

Price = 535.19303

Number of bonds = 12,000,000 / 535.19303

Number of bonds = 22,422

jeff jeffy answered 2 years ago

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