Question

The Outlet needs to raise $3.2 million for an expansion project. The firm wants to raise this money by selling zero coupon bonds with a par value of $1,000 that mature in 20 years. The market yield on similar bonds is 7.8 percent. How many bonds must The Outlet sell to raise the money it needs?

Answer 1

14,783.33 bonds

Step-by-step explanation:

Given

Par value FV = $1000

n =20 * 2 =40

R= 7.80/2 = 3.90%

Price per bond:

price per bond :
`PV = (FV/)/((1+r)^n)`

`= (000)/((1+0.039)^(40))`

`= (1000)/(4.619786467)`

= 216.46

No. of bonds to be issued =
`(amount to raise)/( price per bond)`

`= (3,200,000)/(216.46)`

= 14,783.33 bonds