City ABC is going to issue a $100,000,000 10 year zero coupon bond, proceeds of which will be used for rail infrastructure purposes. If investors demand an annual return of 3%, what will be the amount of funds City ABC can expect to receive when the bond is issued?

Three years have gone by and some of the investors want to be able to sell their position in the secondary market. What would be the price they can expect to be offered if the market rate of interest for City ABC for the remaining years is now 5% per annum?

Answer rating: 100% (QA)

To calculate the amount of funds City ABC can expect to receive when issuing the zero coupon bond we ... View the full answer