Anaconda Inc. has issued three types of debt on January 1, 2014, the start of the company's fiscal year:
1. $10 million, 10-year, 13% unsecured bonds, with interest payable quarterly (the bonds were priced to yield 12%)
2. $2.5 million par of 10-year, zero-coupon bonds at a price to yield 12% per year
3. $15 million, 10-year, 10% mortgage bonds, with interest payable annually to yield 12%
Instructions
Prepare a schedule that identifies the following items for each bond:
(a) The maturity value
(b) The number of interest periods over the life of the bond
(c) The stated rate for each interest period
(d) The effective interest rate for each interest period
(e) The payment amount per period
(f) The present value of the bonds at the date of issue
(g) Each instrument has different features. Comment on how the instruments are different, discussing the underlying nature of the debt. Which bonds are riskiest and why?