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
Question 1: a) Describe fully why and how government intervenes in the foreign exchange market. b) "Changes in the equilibrium exchange rate between a pair of currencies rel

Leveraged Buyout (LBO) Acquisition of an organization through the accumulation of 70 % or more of the organizations total capitalized debt.

We defined the conversion premium as the difference between the market price of the convertible and the conversion value. The conversion premium ratio tells us ab


Pension Reforms On January 1, 2004, Pension Funds have come into force in India. Government servants will have to subscribe to them. The new pension fund system is primarily dr

Q. Just-in-time inventory management? It considerably improves the short-term liquidity of the business with a maximum financing requirement of $138533 rather than $155640. The

Financial Reports: Each person has their own perception on what a particular financial report should contain, and invariably in what they consider to be the important factors w

Researchers found that it is extremely difficult to forecast the future exchange rates more precisely than the forward exchange rate or the current spot exchange rate. How would yo

Wha is Asset turnover- performance ratios Asset turnover = Turnover/ Total assets or capital employed This demonstrates how much sales are generated for every £1 of capit

Jack needs to borrow $1,000 for the next year. Bank South will give him the loan at 9 percent. Suncoast bank will give him the loan at 7 percent with a $50 loan origination fee. Fi