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
An investor, who wants to sell a bond even before it reaches its maturity date, would be concerned as to whether he will receive a price that is close to the true

You have been to carry out the following work: To provide a financial analysis and interpretation of one London stock Exchange registered company. The senior Partner has

How are financing costs generally incorporated into the capital budgeting analysis process? Financing costs are generally captured in the discount or hurdle rate while doing NPV

Divestment of company re-organisations Adisinvestment or divestment is selling part of the business or subsidiary to another third party. Reasons and features for divestme

What are the primary reasons that companies hold cash? Companies hold cash to do necessary payments to take advantage of opportunities as they arise and to cover unforeseen eme

Suppose that the business uses the double declining balance method to depreciate  its equipment (a)  Determine the net book value, depreciation expense, and accumulated deprecia

Capital structure theory: Use the following information to answer the questions: Case I: Capital structure theory ( no tax ) Case II: Capital struct

Assume we are in the midst of the financial crisis in October 2008. Your firm is considering the purchase of a 10 year put option on the S&P 500 Index. You are analyzing the pricin

What can a financial institution often do for a deficit economic unit (DEU) that it would have difficulty doing for itself if the DEU were to deal directly with an SEU? SEUs us

Modern / Discounting Cash Flow Techniques : These methods generally are of more use to businesses in their investment decisions. They take into account the time value of money and