Question

St. somewhere hospital issued $20 million in zero-coupon, five-year bonds. How much would the hospital receive in proceeds from the bond issue?

A) $20 million
B) Less than $20 million
C) More than $20 million
D) Depends on market conditions

Answer 1

The hospital would receive $20 million in proceeds from the bond issue.

Step-by-step explanation:

The amount the hospital would receive in proceeds from the bond issue can be calculated using the formula:

Proceeeds = Principal / (1 + Interest Rate) ^ Number of Years

In this case, the principal is $20 million, the interest rate is 0% (since it's a zero-coupon bond), and the number of years is 5. So the calculation would be:

Proceeeds = $20 million / (1 + 0%) ^ 5

Proceeeds = $20 million

Therefore, the hospital would receive $20 million in proceeds from the bond issue.