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.
Required:
1. 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?
2. 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?