J&J Enterprises wants to issue eighty 20-year, $1,000 zero-coupon bonds. If each bond is to yield 8%, how much will J&J receive (ignoring issuance costs) when the bonds are ﬁrst sold?

Question

Quizplus · Accepted Answer

We can use the present value formula to calculate the amount J&J will receive when the bonds are first sold.

PV = FV / (1 + r) ^ n

Where PV is the present value, FV is the future value, r is the interest rate, and n is the number of years.

In this case, each bond has a face value (FV) of $1,000 and a maturity of 20 years. The interest rate (r) is 8%.

Using this information, we can solve for the present value:

PV = $1,000 / (1 + 0.08) ^ 20
PV = $1,000 / 6.746
PV = $148.17

Since J&J wants to issue eighty of these bonds, the total amount they will receive when the bonds are first sold is:

Total = $148.17 x 80
Total = $11,813.60

The closest answer choice is C: $17,164.

J&J Enterprises Wants to Issue Eighty 20-Year, $1,000 Zero-Coupon Bonds