Question

A boed hes thin follswing foaburet: - Coupon rate ef interear (ead annuaiy) 5 fercent - Princpal- $1,005 - Term to matunty: 12 yeare a. Whit wad the Melder receive whes the bosd thaturei? We neareat dellat. 14 Weald ryu wogect the from ta larkis bend? Whyr wince the bord in owiling tar is A bond has the following features: - Coupon rate of interest (paid annually): 5 percent - Principal: $1,000 - Term to maturity: 12 years

a. What will the holder receive when the bond matures?
b. iterest on comparable debt is 8 percent, what should be the price o Would you expect the firm to call this bond? Why? , since the bond is selling for a
c. If the bond has a sinking fund that requires the firm to set aside annually with a trustee su annually and there is $100 million outstanding?

Answer 1

The holder will receive $1,600 when the bond matures. Whether the firm would call the bond depends on additional information. The sinking fund requirement would reduce the firm's outstanding debt over time.

Step-by-step explanation:

A bond with a coupon rate of 5%, a principal of $1,000, and a term of 12 years will pay $50 in interest annually for 12 years. When the bond matures, the holder will receive the principal amount of $1,000. Therefore, the total amount the holder will receive when the bond matures is $1,000 + (12 * $50) = $1,600.

To determine whether the firm would call this bond, we need more information. If the bond is selling below its face value (at a discount), the firm may choose to call it. If the bond is selling above its face value (at a premium), the firm is unlikely to call it. Without this information, it is not possible to determine whether the firm would call the bond or not.

If the bond has a sinking fund that requires the firm to set aside $100 million annually with a trustee, the sinking fund account will accumulate money over time. This will reduce the firm's outstanding debt and potentially reduce the risk associated with the bond. It is important to note that sinking fund requirements vary, and more information is needed to provide an accurate answer.