Tesla plc needs to raise funds to finance a plant expansion, and it has decided to issue 20-year zero coupon bonds to raise the money. The required return on the bonds will be 12 per cent. What will these bonds sell for at issuance? The par value is £1,000.

California Co. issued 200 bonds at a stated rate of 6% interest,with a principal amount of $1,000. The bonds are dated January 1,2012, and are issued on that date. The bond pays interestsemiannually. The bond will mature in five years.

REQUIRED:

1.What is the total amount of interest will California pay on July 1,2012?



2. How many interest payments will California pay over the life ofthese bonds?



3. What will be the issuance price of the bond if the market rateof interest is 6% at the time of issuance?



4. If the market rate is 10% at the time of issuance, will thebonds sell at a premium or discount?



5. What will be the issuance price of the bond if the market rateof interest is 10% at the time of issuance?

California Co. issued 200 bonds at a stated rate of 6% interest,with a principal amount of $1,000. The bonds are dated January 1,2012, and are issued on that date. The bond pays interestsemiannually. The bond will mature in five years.

REQUIRED:

1. What is the total amount of interest will California pay on July1, 2012?



2. How many interest payments will California pay over the life ofthese bonds?



3. What will be the issuance price of the bond if the market rateof interest is 6% at the time of issuance?



4. If the market rate is 10% at the time of issuance, will thebonds sell at a premium or discount? (You can simply answer"premium" or "discount".)



5. What will be the issuance price of the bond if the market rateof interest is 8% at the time of issuance?

Price Risk

An investor has a one-year time horizon (H=1)
He can invest in three different zero coupon bonds:
1) 1-year-zero-coupon bond
2) 5-year-zero-coupon bond
3) 10-year zero-coupon bond

The current level of the interest rate is equal to 5% per year.During the first year, the interest rate rises from 5 to 10% peryear (stays constant afterwards)

What is the annual realized return of the three bonds?

Present Value Coefficients
Year 1 2 3 4 5 6 7 8 9 10
5% 0,95 0,91 0,86 0,82 0,78 0,74 0,71 0,68 0,64 0,61
10% 0,91 0,83 0,75 0,68 0,62 0,56 0,51 0,47 0,42 0,38