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Question - Zero-Coupon Bonds. Assume that your company needs to raise capital and in order to preserve short-term cash flow, has decided to issue zero-coupon bonds. You aim to raise $5 million by issuing 10-year bonds with a face-value of $1,000 at an effective interest rate of 4%, with or course no coupon rate.
Required -
a. Compute this issue price for a single bond?
b. How many bonds will need to be issued to raise $5 million?
c. What will be the total par value that matures in 10 years?
d. Prepare an amortization schedule for the total of all bonds, assuming you issue the number calculated in b. above. Note that the initial carrying value on this amortization schedule should be $5 million, or a number very close to that. You only need to prepare the first three lines of the amortization schedule.
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