The MerryWeather Firm wants to raise $10 million to expand their business.To accomplish this,the company plans to sell 30-year,$1,000 face value zero-coupon bonds.The bonds will be priced to yield 5.5%.What is the minimum number of bonds the company must sell to raise the $10 million they need?

Question

Quizplus · Accepted Answer

The correct answer is A.The minimum number of bonds the company must sell to raise the $10 million they need is 49,841. This is because the bonds will be priced to yield 5.5%, which means that the present value of the bonds will be $10 million. The present value of a bond is calculated as follows:PV = FV / (1 + r)^nwhere:PV is the present value of the bondFV is the face value of the bondr is the yield to maturityn is the number of years to maturityIn this case, the face value of the bond is $1,000, the yield to maturity is 5.5%, and the number of years to maturity is 30. Plugging these values into the formula, we get:PV = 1000 / (1 + 0.055)^30PV = $49,841.27Therefore, the company must sell at least 49,841 bonds to raise the $10 million they need.

The MerryWeather Firm Wants to Raise $10 Million to Expand