A bond has the following features: Coupon rate of interest: 5 percent Principal: $1,000
Question:
• 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
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...
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Related Book For
Basic Finance An Introduction to Financial Institutions Investments and Management
ISBN: 978-1111820633
10th edition
Authors: Herbert B. Mayo
Question Posted: