# Business Finance: Zero Coupon Bond Essay

≈503 words, ≈1.6 pages (Arial, 14 size)
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## Question:

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.