The Bailey Brothers want to issue 20-year, zero coupon bonds thatyield

QUESTION

The Bailey Brothers want to issue 20-year, zero coupon bonds thatyield 9 percent. What price should it charge for these bonds if theface value is $1,000? a. $157.25 b. $163.70 c. $171.93 d. $194.49 e. $202.64A bond yielded a real rate of return of 4.79 percentfor a time period when the inflation rat
Number of years to Maturity = 20 years Yield toMaturity = 9% Face Value of theBond = $1,000 Couponrate = 0% Bond Value = Present Value of the coupons Present Value of the face amount Bond Value = PVIFA (9%, 20) *Coupon Payment PVF (9%, 20) * Face Amount Bond Value = 9.1285 * $0 ($1000 * 0.1784) Bond Value = $0 $178.40 Bond Value = $178.40 Real rate of

rn (r) = 4.79% Inflation(h) = 1.96% Nominal rate of return(R)= ? Using Fisher Equation: (1 R) = (1 r) * (1 h) (1 R) = (1 0.0479) * (1 0.0196) (1 R) = 1.0479 * 1.0196 (1 R) = 1.0684 R = 1.0684 1 Nominal Interest rate (R ) = 0.684 (or)6.84%

ANSWER:

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