JCPenney Company was one of the first companies to issue zero coupon bonds. It issued bonds with
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JCPenney Company was one of the first companies to issue zero coupon bonds. It issued bonds with a face (maturity) value of $400 million due eight years after issuance. When the bonds were sold to the public, similar bonds paid 15 percent effective interest. An article in Forbes magazine discussed the JCPenney bonds and stated: “It’s easy to see why corporations like to sell bonds that don’t pay interest. But why would anybody want to buy that kind of paper [bond]?”
Required:
1. Explain why an investor would buy a JCPenney bond with a zero interest rate.
2. If investors could earn 15 percent on similar investments, how much did JCPenney receive when it issued the bonds with a face value of $400 million?
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...
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