A bond has the following features: Coupon rate of interest: 5 percent Principal: $1,000 Term to maturity: 10 years a. What will the holder receive when the bond matures? b. If the current rate of interest on comparable debt is 8 percent, what should be the price of this bond? Would you expect the firm to call this bond? Why? c. If the bond has a sinking fund that requires the firm to set aside annually with a trustee sufficient funds to retire the entire issue at maturity, how much must the firm remit each year for ten years if the funds earn 8 percent annually and there is $100 million outstanding?
A bond has the following features: Coupon rate of interest: 5 percent Principal: $1,000 Term to maturity: 10 years a. What will the holder receive when the bond matures? b. If the current rate of interest on comparable debt is 8 percent, what should be the price of this bond? Would you expect the firm to call this bond? Why? c. If the bond has a sinking fund that requires the firm to set aside annually with a trustee sufficient funds to retire the entire issue at maturity, how much must the firm remit each year for ten years if the funds earn 8 percent annually and there is $100 million outstanding?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A bond has the following features:
- Coupon rate of interest: 5 percent
- Principal: $1,000
- Term to maturity: 10 years
a. What will the holder receive when the bond matures?
b. If the current rate of interest on comparable debt is 8 percent, what
should be the price of this bond? Would you expect the firm to call
this bond? Why?
c. If the bond has a sinking fund that requires the firm to set aside annually
with a trustee sufficient funds to retire the entire issue at maturity,
how much must the firm remit each year for ten years if the funds earn
8 percent annually and there is $100 million outstanding?
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