Question: Zenith Corporation has a 5% $1,000,000 bond issue with a maturity of 12 years. Due to a sudden surge in inflation due to our national

Zenith Corporation has a 5% $1,000,000 bond issue with a maturity of 12 years. Due to a sudden surge in inflation due to our national debt, the market rate of interest is currently 7%. Interest is paid semi-annually. Show work!

Will the bond be sold at a “premium”, “par”, or “discount”?

What will be the price and the proceeds?

2) Four years after the original issue (#1 above), with 8 years remaining on the original bond, all banks are taken over the federal government and the current market rate of interest for all “new” bonds will be 3% (market rate of interest) and the current owner decides to sell the bond and move to Australia which has a stronger form of capitalism.

Will the bond be sold at a “premium”, “par”, or “discount”?
What will be the price and the proceeds?

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