Business Finance Zero Coupon Bond

Question: Discuss about the Business Financefor Zero Coupon Bond. Answer: The expected rate of return will be 10.5%. The calculations are shown below: Calculation of Expected Rate of Return:- Particulars Amount Beta Co-Efficient A 1.1 Risk Free Rate B 5% Market Rate of Return C 10% Expected Rate of Return D=B+[Ax(C-B)] 10.5% The price of the zero-coupon bond is $613.91 and 2443 nos. of bonds must be issued to raise fund of $1.5 million. The calculations are shown below: Calculation of Zero Coupon Bond Rate:- Particulars Amount Face Value A $1,000 Maturity Period B 10 Interest Yield Rate C 5% Price of Bond D=A/(1+C)^B $613.91 Capital Requirement E $1,500,000 Bonds to be Issued (in units) F=E/D 2443 Bibliography:- Bodie, Z., Kane, A., Marcus, A. J. (2014).Investments, 10e. McGraw-Hill Education Da, Z., Guo, R. J., Jagannathan, R. (2012). CAPM for estimating the cost of equity capital: Interpreting the empirical evidence.Journal of Financial Economics,103(1), 204-220.