BK just issued 100,000 shares of corporate bond. The bond has par value $1000, a coupon rate
Question:
BK just issued 100,000 shares of corporate bond. The bond has par value $1000, a coupon rate of 5 percent which is paid semiannually and matures 10 years from today. To determine the nominal required rate of return, the following market information is collected.
1) A share of 5 year 4.25% coupon Treasury note is sold at $1028.58.
2) A share of 10 year 4.25% coupon Treasury note is sold at $1022.10.
3) The liquidity and default risk premium is 2% for BK’s bond.
Both of the T-notes have $1000 par value.
Required:
a. Determine the nominal 5 year T-note rate and 10 year T-note rate. Is the yield curve for Treasury securities upward sloping or downward sloping?
b. What is the price for BKs bond?Introduction to Financial Accounting
ISBN: 978-0133251036
11th edition
Authors: Charles Horngren, Gary Sundem, John Elliott, Donna Philbrick