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Suppose your company needs to raise $20 million and you want to issue 20- year bonds for this purpose. You are evaluating the following two
Suppose your company needs to raise $20 million and you want to issue 20- year bonds for this purpose. You are evaluating the following two bond issue alternatives:
1. An 8 percent annual coupon bond
2. A zero-coupon bond
Assume market interest rate (required rate of return) is 10 percent and bonds are sold at their market price.
a. How many of the coupon bonds would you need to issue to raise the $20 million?
b. How many of the zero-coupon bonds would you need to raise the $20 million?
c. In 20 years, what will your company's repayment be if you issue the coupon bond?
d. In 20 years, what will your company's repayment be if you issue the zero- coupon bond?
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