A company has issued a bond with a face value(nominal value)of $1,000 that matures in 5 years.
Question:
A company has issued a bond with a face value(nominal value)of $1,000 that matures in 5 years. Coupons are paid every 6 months at a rate of 9% and the required rate of return(yield)is j2 = 8%.(a) Indicate whether the bond was issued at a premium or discount, and calculate line 5 of the bond's premium or discount amortization schedule.(b) The investor sells the bond 3 months after receiving the 5th coupon. Calculate: the selling price, the current interest and the quota percentage (calculations should be made according to the semi-theoretical method).(c) The investor decides to reinvest all of the coupon payments every six months in a fund that generates j2=5% interest until the bond matures.
Calculate the investor's net cashflow at the end of year 5.
Fundamentals of Investing
ISBN: 978-0133075359
12th edition
Authors: Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk