Section A (10 marks) 1. Company A needs to raise $1,000,000 for a business. The company plans to issue 10-year bonds with face value of $1,000. The going market yield for such bonds is 8.125% p.a. The firm is trying to decide between issuing an 8% p.a. coupon bond or a zero coupon bond. Assume that coupon payments will be made semi-annually.

a. What will be the price of an 8 percent coupon bond? (2 marks)

b. How many 8 percent coupon bonds would have to be issued? (1 mark)

c. What will be the price of a zero coupon bonds? (2 marks)

d. How many zero coupon bonds will have to be issued? (1 mark)