The MerryWeather Firm wants to raise $12 million to expand its business. To acco
ID: 2775436 • Letter: T
Question
The MerryWeather Firm wants to raise $12 million to expand its business. To accomplish this, the firm plans to sell 10-year, $1,000 face value zero-coupon bonds. The bonds will be priced to yield 6 percent. What is the minimum number of bonds the firm must sell to raise the $12 million it needs? Use annual compounding.
21,490
12,000
24,146
10,745
48,293
The MerryWeather Firm wants to raise $12 million to expand its business. To accomplish this, the firm plans to sell 10-year, $1,000 face value zero-coupon bonds. The bonds will be priced to yield 6 percent. What is the minimum number of bonds the firm must sell to raise the $12 million it needs? Use annual compounding.
Explanation / Answer
We first need to compute price of the zero coupon bond.
Face value FV= 1000
N = 10 years
R =6%
PV = FV/ (1+r)^n
= 1000/(1+0.06)^10
= 1000/1.79085
= 558.39
They want to raise 12 million.
No. of bonds = amount to raise / price per bond
= 12,000,000/558.39
= 21,490 bonds
Therefore, option A is correct
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