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The Outlet needs to raise $3.2 million for an expansion project. The firm wants to raise this money by selling zero coupon bonds with a par value of $1,000 that mature in 20 years. The market yield on similar bonds is 7.8 percent. How many bonds must The Outlet sell to raise the money it needs?

Respuesta :

Answer:

14,783.33 bonds

Explanation:

Given

Par value FV = $1000

n =20 * 2 =40

R= 7.80/2 = 3.90%

Price per bond:

price per bond :[tex] PV = \frac{FV/}{(1+r)^n}[/tex]

     [tex]= \frac{000}{(1+0.039)^{40}}[/tex]

      [tex]= \frac{1000}{4.619786467}[/tex]

      = 216.46

No. of bonds to be issued = [tex]\frac{amount to raise}{ price per bond}[/tex]

                                           [tex]= \frac{3,200,000}{216.46}[/tex]  

                                            = 14,783.33 bonds

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