# Question

A bond has the following features:

• Coupon 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 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?

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