# Question: You are given the following information concerning a noncallable sinking

You are given the following information concerning a noncallable, sinking fund debenture:

• Principal: $1,000

• Coupon rate of interest: 7 percent

• Term to maturity: 15 years

• Sinking fund: 5 percent of outstanding bonds retired annually; the balance at maturity

a. If you buy the bond today at its face amount and interest rates rise to 12 percent after three years have passed, what is your capital gain (loss)?

b. If you hold the bond 15 years, what do you receive at maturity?

c. What is the bond’s current yield as of right now?

d. Given your price in a, what is the yield of maturity?

e. Is there any reason to believe that the bond will be called after three years have elapsed if interest rates decline?

f. What proportion of the total debt issue is retired by the sinking fund?

g. What assets secure this bond?

h. If the final payment to retire this bond is $1,000,000, how much must the firm invest annually to accumulate this sum if the firm is able to earn 7 percent on the invested funds?

• Principal: $1,000

• Coupon rate of interest: 7 percent

• Term to maturity: 15 years

• Sinking fund: 5 percent of outstanding bonds retired annually; the balance at maturity

a. If you buy the bond today at its face amount and interest rates rise to 12 percent after three years have passed, what is your capital gain (loss)?

b. If you hold the bond 15 years, what do you receive at maturity?

c. What is the bond’s current yield as of right now?

d. Given your price in a, what is the yield of maturity?

e. Is there any reason to believe that the bond will be called after three years have elapsed if interest rates decline?

f. What proportion of the total debt issue is retired by the sinking fund?

g. What assets secure this bond?

h. If the final payment to retire this bond is $1,000,000, how much must the firm invest annually to accumulate this sum if the firm is able to earn 7 percent on the invested funds?

## Relevant Questions

Big Oil Inc. has a preferred stock outstanding that pays a $9 annual dividend. If investors’ required rate of return is 13 percent, what is the market value of the shares? If the required return declines to 11 percent, ...Given the following information concerning a convertible bond: • Coupon: 6 percent ($60 per $1,000 bond) • Exercise price: $25 • Maturity date: 20 years • Call price: $1,040 • Price of the common stock: $30 a. If ...Assume that the rate of inflation is 3 percent and continues indefinitely and that the cost of a car is currently $25,000. How much will that car cost 25 years from today? Given the following information, what is the corporation’s federal tax obligation? Taxable income: ....... $2,000 Taxable income: ........ $65,000 Taxable income: ........ $1,000,000 Taxable income: ........ $50,000,000 HBM, Inc. has the following capital structure: The common stock is currently selling for $15 a share, pays a cash dividend of $0.75 per share, and is growing annually at 6 percent. The preferred stock pays a $9 cash dividend ...Post your question