# Suppose a firm is issuing 10,000 bonds. Each bond has a face amount of $950, a stated rate of 7.5%,

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## Question:

Suppose a firm is issuing 10,000 bonds. Each bond has a face amount of $950, a stated rate of 7.5%, and an 18-year term. When the bonds are issued, the market rate for similar bonds is 6.8%.

- 1. What is the coupon (interest) payment of this bond?

- 2. Based on the coupon (interest) payment found in (1.), what is the bond price when issued given the market rate of 6.8%?

- 3. Based on your answer to (2.), explain why investors are either willing to pay more or less than the face amount of $950?

- 4. How much capital does the firm raise assuming all 10,000 bonds are sold at the bond price you found in (2.)?

Suppose after 8 years an investor decides to sell their bond for $925.

- 5. What is the yield to maturity after 8 years given the bond price of $925?

- 6. Based on the yield to maturity you calculated in (5.), is the bond at par, a premium bond, or a discount bond? Why?

- 7. What is the bond price after the 8th year if the yield to maturity is 7.5%?

**Related Book For**

## Intermediate accounting

ISBN: 978-0077647094

7th edition

Authors: J. David Spiceland, James Sepe, Mark Nelson

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