Several years ago, JCPenney Company issued bonds for 33.24 (percent of face value), with a face value

Question:

Several years ago, JCPenney Company issued bonds for 33.24 (percent of face value), with a face value of $200 million and a stated interest rate of zero, which matured eight years later. That same year, Martin Marietta, Northwest industries, and Alcoa also issued bonds with stated interest rates of zero.

Required:

(a) Why would an investor purchase a bond with a stated interest rate of zero?

(b) Compute the effective interest rate on the bond issuance.

(d) At what price would the bonds have been issued if the stated interest rate had been 5 percent? 18 percent? Assume that interest payments would be made annually.

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...