1. 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!

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

2. 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.

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

Answer rating: 100% (QA)

1 a The bond prices have an inverse relationship with market rates of interest When market rate coup... View the full answer