A $1,000 corporate bond has a stated interest rate of 8 percent. Interest on the bond is paid semiannually.
(a) How much interest will be paid on each interest payment date?
(b) Suppose this bond was sold when the quoted market price was 98. How much did the company receive for the bond? If a bond is sold for more or less than its face value of a bond, will the amount of interest the company must pay each semiannual period be affected? Explain.
(c) If this bond was sold at a quoted market price of 98, was the market interest rate on the purchase date higher or lower than the bond’s stated interest rate? Explain.
(d) How much will the purchaser of this bond receive on the maturity day as repayment of his or her principal? Is the amount of repayment affected by the selling price of the bond? Why or why not?

  • CreatedMarch 27, 2015
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