A bond has the following terms: Principal ....... amount $1,000 Annual interest payment ...$140 starting after five
Question:
A bond has the following terms:
Principal ....... amount $1,000
Annual interest payment ...$140 starting after five years have passed (i.e., in year 6)
Maturity ....... 12 years
Callable at $1,140 (i.e., face value +1 one year’s interest)
a) Why do you believe that the terms were constructed as specified?
b) What is the bond’s price if comparable debt yields 12 percent?
c) What is the bond’s current yield?
d) Even though interest rates have fallen, why may you not expect the bond o be called?
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...
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a The terms of these bonds are designed to reduce the firms cash outflows during the initial ye...View the full answer
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