French energy giant GDF Suez recently issued a zero coupon bond. This bond issua

Question

French energy giant GDF Suez recently issued a zero coupon bond. This bond issuance garnered attention because it was the first time in 14 years that a zero coupon bond had been issued in euros. The zero coupon bond has a face value of €500 million euros and matures in two years. Assume that when the bonds were sold to the public the annual market rate of interest was 3 percent.

2. If investors could earn 3 percent on similar investments, how much did GDF Suez receive when it issued the bonds with a face value of €500 million? (Round your PV Factors to 5 decimal places. Enter your answer in whole euros.)

3. How much would GDF Suez have received if the annual market rate of interest remained at 3 percent but the bonds did not mature for 10 years? (Round your PV Factors to 5 decimal places. Enter your answer in whole euros.)

Explanation / Answer

1
Price of bonds per 100=100/1.03^2=94.25959
Hence, for face value of 500 million euros, GDF Suez would receive 500*94.25959/100=471.298 million euros
2
Price of bonds per 100=100/1.03^10=74.40939
Hence, for face value of 500 million euros, GDF Suez would receive 500*74.40939/100=372.047 million euros

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