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Zero coupon bonds: Calculate issue price and interest expense for The Ledge

Zero coupon bonds pay no interest. The only cash investors receive is the lump-sum principle payment at maturity. On January 1, 2005 The Ledge Inc. issued $250 million of zero coupon bonds at a market yield rate of 12%. The bonds mature in 20 years.

Required

1. What was the January 1, 2005 issue price of these zero coupon bonds.
2. How much interest expense will The Ledge record on the bonds in 2005?

Solution Preview

1. What was the January 1, 2005 issue price of these zero coupon bonds.
FV = 250 million
n=20
interest ...

Solution Summary

The solution shows all the calculation in arriving at the answers.

$2.19