Coupon bonds available for sale in the bond market

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Consider the following risk-free T-bill and coupon bonds available for sale in the bond market (annual coupons):

Maturity Price Coupon

1 942 T-bill

2 995 6.3%

3 998 7.5%

4 985.25 6.75%

a) Your company plans to issue four-year maturity bonds. You plan to issue bonds priced at $980. At what level should you plan to set the coupon on your bond?

b) Suppose now that your company does not have money to pay coupons, and thus plans rather to issue discount bonds instead of coupon bonds. At what price do you expect to sell the zero-coupon bonds?

Reference no: EM131601534

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