Navarro, Inc., plans to issue new zero coupon bonds with a par value of $1,000 to fund a new project. The bonds will have a YTM of 5.43 percent and mature in 20 years. If we assume semiannual compounding, at what price will the bonds sell?

Question

Sammy Maldonado

Business

25 September, 04:57

Navarro, Inc., plans to issue new zero coupon bonds with a par value of $1,000 to fund a new project. The bonds will have a YTM of 5.43 percent and mature in 20 years. If we assume semiannual compounding, at what price will the bonds sell?

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Answers (1)

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Jayvion Donovan · Answer 1

Bond Value is $347.30

Explanation:

Zero coupon bond does not offer any return on the bond that's why it is issued on deep discount value.

Number of years = n = 20 years

Face value = F = $1,000

YTM = 5.43%

Price of the Bond = [ F / (1 + r) ^n ]

Price of the Bond = [ $1,000 / (1 + 5.43%) ^20 ]

Price of the Bond = [ $1,000 / (1.0543) ^20 ]

Price of the Bond = 347.30