Problem 1. Using present value analysis estimate the number of zero coupon bonds(each with a face value of $1000) that will have to be offered to provide the $1 million Laurinburg Precision Engineering needs for expansion, if investors seek a yield of 10%. Assume interest will compound on a semiannual basis over the life of the five year bond issue.
Problem 2. Assume that McKinnon and MacDougald decide to issue coupon bonds to finance the expansion of Laurinburg Precision Engineering. The terms of the $1,000 bonds due january 15, 2009, specify an interest rate of 10% with semiannual compounding of interest payments. However, Shelia Cox is able to find a group of investors who will accept a yield of 8% interest. How much will the investors be willing to pay for the 10% bonds?
Problem 3. If zero-coupon bonds with semiannual compounding to be due January 15,2009, are issued, what will be the amount due on that date if enough bonds are issued to provide $1 million on January 15, 2004, if the investors seek a yield of 8%?
Problem 4. How should Oliver MacKinnon and Beacham McDougald decide which bonds (the zero-coupon bonds or the 10% coupon bonds) to issue? What factors should they consider? Why?