A) BOND VALUATION: DeBond Industries has outstanding a $1,000 face-value bond with an 8% coupon interest rate. The bond has 12 years remaining to its maturity date. a) If interest is paid annually, find the value of the bond when the required return is (1) 7%, (2) 8%, and (3) 10%. b) Indicate for each case in part a whether the bond is selling at a discount, at a premium, or at its par value. c) Using the 10% required return, find the bond’s value when interest is paid semiannually. B) AMORTIZATION: Suppose you borrow $1,200,000. You are going to repay the loan by making equal annual payments for five years. The interest rate on the loan is 12 percent per year. Prepare an amortization schedule for the loan. How much interest will you pay over the life of the loan? What fraction of the payment made at the end fourth year will represent repayment of principal?
A)
8% coupon interest rate. The bond has 12 years remaining to its maturity date.
a) If interest is paid annually, find the value of the bond when the required return is (1) 7%, (2)
8%, and (3) 10%.
b) Indicate for each case in part a whether the bond is selling at a discount, at a premium, or at its
par value.
c) Using the 10% required return, find the bond’s value when interest is paid semiannually.
B) AMORTIZATION: Suppose you borrow $1,200,000. You are going to repay the loan by
making equal annual payments for five years. The interest rate on the loan is 12 percent per year.
Prepare an amortization schedule for the loan. How much interest will you pay over the life of the
loan? What fraction of the payment made at the end fourth year will represent repayment of
principal?
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