Zero Coupon BondsE5B.The state of Ohio needs to raise $25,000,000 for highway repairs. Officials are considering issuing zero coupon bonds, which do not require periodic interest payments. The current market interest rate for the bonds is 8 percent. What face value of bondsmust be issued to raise the needed funds, assuming the bonds will be due in 30 yearsand compounded annually? How would your answer change if the bonds were due in50 years? How would both answers change if the market interest rate were 6 percentinstead of 8 percent? Chapter 11, E5BFace value of 30-year, 8% zero coupon bonds, compounded annually:Present value of a single payment at the end of 30 periods at 8%(from Table 1*):Face value xFace value =Face value =Face value of 50-year, 8% zero coupon bonds, compounded annually:Present value of a single payment at the end of 50 periods at 8%(from Table 1"):Face value xFace valueFace value =Face value of 30-year, 6% zero coupon bonds, compounded annually:Present value of a single payment at the end of 30 periods at 6%(from Table 1*):Face value xFace value =Face value =Face value of 50-year, 6% zero coupon bonds, compounded annually:Present value of a single payment at the end of 50 periods at 6%(from Table 1*): Face value of 50-year, 6% zero coupon bonds, compounded annually:Present value of a single payment at the end of 50 periods at 6%(from Table 1*):Face value xFace value =Face value =*From the appendix on present value tables.

Zero coupon bonds Bonds are common fixed-income instruments that are issued by both governments and…

Answered: Chapter 11, E5B Face value of 30-year,…

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Zero Coupon Bonds
E5B.The state of Ohio needs to raise $25,000,000 for highway repairs. Officials are considering issuing zero coupon bonds, which do not require periodic interest payments. The current market interest rate for the bonds is 8 percent. What face value of bonds
must be issued to raise the needed funds, assuming the bonds will be due in 30 years
and compounded annually? How would your answer change if the bonds were due in
50 years? How would both answers change if the market interest rate were 6 percent
instead of 8 percent?

Chapter 11, E5B
Face value of 30-year, 8% zero coupon bonds, compounded annually:
Present value of a single payment at the end of 30 periods at 8%
(from Table 1*):
Face value x
Face value =
Face value =
Face value of 50-year, 8% zero coupon bonds, compounded annually:
Present value of a single payment at the end of 50 periods at 8%
(from Table 1"):
Face value x
Face value
Face value =
Face value of 30-year, 6% zero coupon bonds, compounded annually:
Present value of a single payment at the end of 30 periods at 6%
(from Table 1*):
Face value x
Face value =
Face value =
Face value of 50-year, 6% zero coupon bonds, compounded annually:
Present value of a single payment at the end of 50 periods at 6%
(from Table 1*):

Face value of 50-year, 6% zero coupon bonds, compounded annually:
Present value of a single payment at the end of 50 periods at 6%
(from Table 1*):
Face value x
Face value =
Face value =
*From the appendix on present value tables.

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