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City Kat Ltd. plans to issue 30-year bonds to raise $50 million for an eco-travel project. The bond has a face value of $1,000 and
City Kat Ltd. plans to issue 30-year bonds to raise $50 million for an eco-travel project. The bond has a face value of $1,000 and a required rate of return of 5 percent. The company is currently evaluating two alternatives for the bond issuance: (1) A semi-annual coupon bond with a 5 percent coupon rate and (2) a zero-coupon bond.
- How many of the coupon bonds would City Kat need to issue to raise the $50 million?
- How many of the zero-coupon bonds would it need to issue?
- In 30 years, what will City Kats repayment be if the company issues the coupon bonds? What if it issues the zero-coupon bonds?
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