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Kintel, Inc
Kintel, Inc., management wants to raise $1 million by issuing six-year zero coupon bonds with a face value of $1,000. The company's investment banker states that investors would use an 12.36 percent discount rate to value such bonds. Assume semiannual coupon payments.
At what price would these bonds sell in the marketplace? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and Bond price to 2 decimal places, e.g. 15.25)
Market rate$
How many bonds would the firm have to issue to raise $1 million? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and number of bonds to 0 decimal places, e.g. 5,275.)
Number of bonds
Expert Solution
1) Computation of Market Rate using PV Function in Excel:
=-pv(rate,nper,pmt,fv)
Here,
PV = Market Rate of Bond = ?
Rate = 12.36%/2 compounded semiannually
Nper = 6 years*2 = 12 periods
PMT = 0
FV = $1,000
Substituting the values in formula:
=-pv(12.36%/2,12,0,1000)
PV or Market rate of Bonds = $486.95
2) Computation of Number of Bonds the firm have to issue to raise $1 million:
Number of Bonds = Amount/Market Rate of Bonds
= $1,000,000/$486.95
Number of Bonds = 2,053.58 or 2,054
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