Flying high inc plans to raise 5000000 external financing, Ask an Expert

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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 allover the life of the zero coupon bond.

Present market interest rate for 5-year bond of similar bond issuers like Flying High Inc. is 8%. Assume there is no issuance cost.

Requirements: Show your calculation

a. Determine 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 needed external financing of $5,000,000?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9531338

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