Question

Q1. Bond Prices
For example, if a $100,000 bond is issued at 102 the bond will sell for 102% of the face value or for $102,000.
a. A $100,000 bond issued @ 99 will sell for ___________ of the face value, which is ________.
b. A $50,000 bond issued @ 103 will sell for ___________ of the face value, which is ________.
A Bond Issuance raises large amounts of capital ($$$) by issuing many bonds of small denominations (e.g. $1,000).
Principal = Maturity Value = Face Value = the amount the issuing corporation pays to the holder of the bond at maturity
Stated Rate = Coupon Rate = the rate of the required annual interest payment
Principal x Stated Rate = Annual Interest Payment
Use the information on the bond payable below to answer the following question.
Bond Payable
Principal $10,000
Stated rate 10%
Matures in 10 years 
Q2. The issuing corporation makes interest payments of (___________ / $10,000 / $20,000) annually to the holder of this bond.
Over the life of the bond, the corporation will pay out ($1,000 / ___________ / $20,000) in interest payments and repay ($1,000 / ___________ / $20,000) of principal at maturity, for a total cash outflow of ($1,000 / $10,000 / ___________) over the life of the bond.
Q3. Assume the bond was originally issued for $10,000 and held to maturity.
a. The corporation paid out ___________ in total interest payments + paid out ___________ of principal at maturity = total amounts paid of ___________
b. At issuance the corporation received from the investor ___________
c. The difference is the cost of borrowing over the ten years = ___________
d. This bond was issued at (a premium / ___________ / a discount) because the market rate of interest was (less than 10% / ___________ / more than 10%).
Q4. Assume the bond was originally issued for $8,000 and held to maturity.
a. The corporation paid out ___________ in total interest payments + paid out ___________ of principal at maturity = total amounts paid of ___________
b. At issuance the corporation received from the investor ___________
c. The difference is the cost of borrowing over the ten years = ___________
d. This bond was issued at (a premium / par / ___________) because the market rate of interest was (less than 10% / 10% / ___________).
Q5. Assume the bond was originally issued for $12,000 and held to maturity.
a. The corporation paid out ___________ in total interest payments + paid out ___________ of principal at maturity = total amounts paid of ___________
b. At issuance the corporation received from the investor ___________
c. The difference is the cost of borrowing over the ten years = ___________
d. This bond was issued at (___________ / par / a discount) because the market rate of interest was (___________ / 10% / more than 10%).
Q6. The issuing corporation would prefer to borrow money in a (___________ / 8% / 12%) market, while an investor would prefer a (4% / 8% / ___________) market.
Q7. When will a bond be issued at a premium? Par? A discount?
Q8. A corporation would prefer to issue bonds at a (___________ / par / discount). Why?


$1.99
Sales0
Views36
Comments0
  • CreatedSeptember 17, 2015
  • Files Included
Post your question
5000