Need help with #9. Thank you. Term to maturity: Bond B has the following terms:
ID: 2642899 • Letter: N
Question
Need help with #9.
Thank you.
Term to maturity: Bond B has the following terms: . Coupon rate of interest: 5 percent Principal: $1,000 Term to maturity: 8 years a. What should be the price of each bond if interest rates are 10 percent ? b. What will be the price of each bond if, after five y interest rates are 10 percent? c. What will he the price of each bond if, after eight years have elapsed, interest rates are percent? 9. 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 b 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 can 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 10 years if the funds earn 8 percent annually and there is $100 million outstanding? 10. You are given the following information concerning a noncallable, sinking fund debenture: Principal: $1,000 Coupon rate of interest: 7 percent Term to maturity: 15 years Sinking fund: S percent of outstanding bonds retired annually; the ba ance at maturity a. If you buy the bond today at its face amount and interest rates ri to 12 percent after three years have passed, what is your cap (loss)?Explanation / Answer
a) Bond holder will receive = Face value = 1000
b) Price (Using excel formula):
=-PV(0.08,10,50,1000)
= 798.70
c) Each year remittence (Using excel formula):
=-PMT(0.08,10,0,100000000)
= 6,902,949