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A bond that has features:coupon of rate of  5 percentprincipal: $1,000term to maturity: 10 yearsa. 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 fundas earn 8 percent annually and there is $100 million oustanding?

Question

A bond that has features:

coupon of rate of  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 fundas earn 8 percent annually and there is $100 million oustanding?

check_circleAnswer
Step 1

a.

Calculation of Price of Bond when it matures:

The bond price can be calculated using a excel function =PV, which denotes the present value of any investment. The need of using a excel function here is to get accurate final answers without any rounding error. The excel spreadsheet with excel function is shown below:

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Step 2

The excel workings for calculating bond price is shown below:

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Step 3

b.

Calculation of Price of Bond at 8% Interest Rate:

The bond price can be calculated using a excel function =PV, which denotes the present value of any investment. The need of using a excel function here is to get accurate fina...

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