A bond has the following features: Coupon rate of interest: 5 percent Principal: $1,000

Question:

A bond has the following features:
• rate of interest: 5 percent
• Principal: $1,000
• Term to maturity: 10 years
a. What will the holder receive when the bond matures?
b. If the current rate of interest on comparable debt is 8 percent, what should be the price of this bond? Would you expect the firm to call this bond? Why?
c. If the bond has a sinking fund that requires the firm to set aside annually with a trustee sufficient funds to retire the entire issue at maturity, how much must the firm remit each year for 10 years if the funds earn 8 percent annually and there is $100 million outstanding?
Coupon
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...