Question

Total healthcare medical center needs $10 million in debt proceeds to finance an expansion of its pulmonary care unit. they would prefer to finance the expenditure with zero coupon bonds maturing in ten years. if the market interest rate is 5%, how much in bonds must be issued to receive the needed $10 million in proceeds?

Answer 1

When the market interest rate is 5%, Total Healthcare Medical Center must issue approximately $6,139,917.36 in zero coupon bonds to receive the needed $10 million in proceeds.

Step-by-step explanation:

When the market interest rate is 5%, the value of a zero coupon bond can be calculated using the formula:

Bond value = Face value / (1 + Interest rate) ^ Years to maturity

In this case, Total Healthcare Medical Center needs $10 million in debt proceeds. So, we have:

Bond value = $10,000,000 / (1 + 0.05) ^ 10 = $6,139,917.36

Therefore, Total Healthcare Medical Center must issue approximately $6,139,917.36 in bonds to receive the needed $10 million in proceeds.