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3. Cullumber Real Estate Company management is planning to fund a development project by issuing 10-year...

3. Cullumber 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 12.8 percent? Round answer to 2 decimal places.

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Answer #1
Solution:
Given:
Term i.e NPER 10 Year i.e 20 Semiannual Payments
Face value i.e Future value(FV) $1,000
Discount Rate i.e RATE 12.8% i.e. 6.4% semiannual rate
As it is a Zero Coupon Bond , there would be 0 coupon payments , therefore Coupon amount (PMT) would be 0
Using the PV Function in excel we will calculate the price of bond:
PV(6.4%,20,0,-$1000,0)
$289.18
Price of these Bonds = $289.18
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