Calculate the percentage of price change and regular bonds, Financial Management

Flying High Inc. plans to raise $5,000,000 external financing through issuing bonds, and is considering two options: regular bonds and zero couple bonds.  The regular bonds will have coupon rate at 10%, payable semi-annually, with face value of $1,000 each and maturity of 5 years.  The zero coupon bonds will be the same as the regular bonds except that there is no coupon attached to these bonds, i.e. no interest payment throughout the life of the zero coupon bond.

Current market interest rate for 5-year bond of similar bond issuers like Flying High Inc. is 8%.  Assume there is no issuance cost.

Questions:

a. Calculate the price of regular bonds at the time of issuance.

b. Based on $1,000 face value for each bond, what is the minimum number of regular bonds to be issued to raise the required external financing of $5,000,000?

c. Calculate the price of zero coupon bonds at the time of issuance.

d. Based on $1,000 face value for each bond, what is the minimum number of zero coupon bonds to be issued to raise the required external financing of $5,000,000?

e. Assuming market interest rate remains unchanged in next 2 years, calculate the bond price at that time and explain the changes in price for each of these bonds.

f. Calculate the percentage of price change of each of the bonds between the time of issuance and 2 years after such time, and discuss why each of these bond prices changes.

Posted Date: 2/16/2013 1:18:15 AM | Location : United States







Related Discussions:- Calculate the percentage of price change and regular bonds, Assignment Help, Ask Question on Calculate the percentage of price change and regular bonds, Get Answer, Expert's Help, Calculate the percentage of price change and regular bonds Discussions

Write discussion on Calculate the percentage of price change and regular bonds
Your posts are moderated
Related Questions
Fraud and Society and Analytical Techniques: Fraud and Society - The effects and financial consequences of fraud in society including the individual, older people, financial

need to understand some basics of changes in working capital

What is nondiversifiable risk? How is it measured? If not the returns of one-half the assets in a portfolio are perfectly negatively correlated along with the other half-which

Q. How to Select the pattern of the investment? When the funds have been procured than a decision about the investment pattern is to be taken. The selection of the investment p

Implementing Systems Effectively: Much of the accounting process has been taken over by office automation systems. Whereas once the vast majority of bookkeeping and reporting t

What is the meaning of Financing decision Financing decision of a firm relates to choice of the proportion of these sources to finance investment requirements.

Keys Printing plans to issue a $1,000 par value, 10-year noncallable bond with a 5.00% coupon, paid semiannually. It should sell at par. The company''s marginal tax rate is 40.00%

Formation of Board of AMC and Restrictions on Directors Having regard to the significant role of the Board of Directors of the AMC in rendering the company's operations efficie

TYPES OF FINANCE FUNCTIONS/ DECISIONS The most main decisions in finance relate to procuring funds, investing them in profitable projects or assets, operate for the year and a

Operating profit margin Operating profit margin    =   (PBIT / Turnover) x 100% This is the ratio of operating profit to turnover or sales. A high operating profit margin is