Question

Instructions /h Question 5 (of 5) Save & Exit Submi 5. The App Store needs to raise $2.8 milion for expansion. The fiem wants to raise this money by selling 20 year, zero-coupon bonds with a par value of $1,000. The market yield on similar bonds is 6.49 percent. How many bonds must the company sel to raise the money it needs? Assume semiannual compounding O 2800 bonds O 9450 bonds O 11,508 bonds 。70.3% bonds 10.044 bonds

Answer 1

Answer to Q#5: Option-(e): 10,044 bonds Reason 3.25% [6.49%/2] Semiannual Interest rate, RATE Number of semiannuals to maturity, NPE Semiannual coupon payments, PMT Bond's maturity value, FV Semiannual compounding type, TYPE Bond's current market price Amount needs to be raised Number of shares to be issued 40 [20 years x 2] $o because it is a zero coupon bond. $1,000 0 er soreunded atht nd af asch er i cmpounded atha besining sf each vear $278.77 [Ref: NOTE] $2,800,000 10,044 [Amount needs to be raised/Bond's current market price -$2,800,000/$278.77-10,044] NOTE: Bond's current market price is calculated using EXCEL FUNCTION PV(rate,nper,pmt,fv,type) where rate-3.25%; nper=40; pmt=0; fV-1000; type-o. Here, negative values for pmt & pv indicate that they are cash inflows; type-0 indicates that compounding occurs at the end of each semiannual.