Analyzing Zero Coupon Bonds from an Actual Company
JC Penney Company was one of the first companies to issue zero coupon bonds. It issued bonds with a face (maturity) value of $400 million due eight years after issuance. When the bonds were sold to the public, similar bonds paid 15 percent effective interest. An article in Forbes magazine discussed the JC Penney bonds and stated: “It’s easy to see why corporations like to sell bonds that don’t pay interest. But why would anybody want to buy that kind of paper [bond]?”
Required;
1.Explain why an investor would buy a JC Penney bond with a zero interest rate.
2.If investors could earn 15 percent on similar investments, how much did JC Penney receive when it issued the bonds with a face value of $400 million?
We need at least 10 more requests to produce the solution.
0 / 10 have requested this problem solution
The more requests, the faster the answer.