Elise's Crafts needs $225,000 today to purchase some new equipment. The firm is a planning on issuing 10-year zero-coupon bonds. The current market rate of interest is 6.5%. How many bonds must Elise's Crafts sell to raise the money they need?

Question

Quizplus · Accepted Answer

To find the number of bonds needed, calculate the present value of a zero-coupon bond using the formula: PV = F / (1 + r)^n, where F is the face value (assumed $1,000), r is the interest rate (6.5%), and n is the number of years (10). Solve for the number of bonds by dividing the total amount needed ($225,000) by the present value of one bond. This calculation results in approximately 423 bonds.

Elise's Crafts Needs $225,000 Today to Purchase Some New Equipment