On July 28, 2016, Shannon Corporation, a biotechnology firm located in Virginia, completed a private placement of zero-coupon convertible subordinated debentures. The zero-coupon debentures were issued at a price of \($551.26\) per \($1,000\) principal amount at maturity. Although the zerocoupon bonds paid no periodic interest payments, interest was assumed to be compounded semiannually. The bonds mature in 2036.

Estimate the yield rate on the zero-coupon bonds at the time of issuance. Why would Shannon Corporation issue non-interest-bearing bonds? Why would Shannon attach a conversion feature to the zero-coupon bonds? Calculate Shannon’s implicit interest expense for the first year. a)