Suppose your company needs to raise $15 million and you want to issue 21-year bo

Question

Suppose your company needs to raise $15 million and you want to issue 21-year bonds for this purpose. Assume the required return on your bond issue will be 4 percent, and you're evaluating two issue alternatives: a 4 percent semiannual coupon bond and a zero coupon bond. Your company's tax rate is 33 percent.

a. You will need to issue ________ of the coupon bonds to raise the $15 million.
You will need to issue _________ of the zeroes to raise the $15 million. (Round your answers to the nearest whole number. (e.g., 32))
b. In 21 years, your company's repayment will be $ _________ if you issue the coupon bonds. (Do not include the dollar sign ($).)
If you issue the zeroes, your company's repayment will be $ _________. (Do not include the dollar sign ($). Do not round your intermediate calculations. Round your answers to the nearest whole number. (e.g., 32)

Please help me answer this one, and if its not too much trouble can you provide an explaination. Thank you!

Explanation / Answer

If bonds are issued, price of one bond will be assumed to be 1000 hence bonds can be calculated by dividing amount required i.e. 15 million by 1000.

a. You will need to issue 15,000 of the coupon bonds to raise the $15 million.
You will need to issue 15,000 of the zeroes to raise the $15 million.
b. In 21 years, your company's repayment will be $ 22,195,369 if you issue the coupon bonds.

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