ABC Company issues an 18-year zero-coupon bond with a face value of $80 million. The bond was issued to yield 5.75% per year (which equated to the market’s required rate of return on ABC’s debt at the date of issue).

a. What should the market value of the bond be at the time of issue?

b. What amount will the purchaser of the bond record on its books as Investment – Bond?

c. What will the value of that account (Investment – Bond) be at the end of the last day of the 18th year (i.e., at maturity)?

d. What best explains how that Investment – Bond account value changed over that 18-year period on the books of the investor (for simplicity's sake, assume that the original purchaser of the bond held it until its maturity)?

Answer rating: 100% (QA)

a To calculate the market value of the bond at the time of issue we need to use the present value fo... View the full answer