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Issuers of coupon bonds make a single payment of principal when the bonds mature

ID: 1169639 • Letter: I

Question

Issuers of coupon bonds

make a single payment of principal when the bonds matures, but multiple payments of interest over the life of the bond.

make a single payment of interest and principal.

make multiple payments of principal, but a single payment of interest.

make a single payment of principal at the time the bond is issued and multiple payments of interest over the life of the bond.

You purchase a two-year $1000 face value bond at par. The bond has a 6% coupon rate.However, do to cashflow problems, the company misses the first coupon payment, but pays both coupons payments in year 2. What is your rate of return?

0.0583

0.0653

0.0300

0.0600

0.0428

Using the information, in the previous question, suppose the company pays all of the coupon payments on time. What is your rate of return?

0.1200

0.0600

0.0300

0.0500

0.0800

What is the price of a coupon bond that has annual coupon payments of $75, a par value of $1000, a yield to maturity of 5%, and a maturity of two years?

$1043.08

$1046.49

$1000.00

$1150.00

You purchase a two-year $1000 face value bond at par. The bond has a 6% coupon rate.However, do to cashflow problems, the company misses the first coupon payment, but pays both coupons payments in year 2. What is your rate of return?

0.0583

0.0653

0.0300

0.0600

0.0428

Someone offers you the following deal. They will pay you $5000 in two years if you agree to pay them $4500 today. If you accept the deal, what is your rate of return?

0.0731

0.0541

0.1111

0.0342

make a single payment of principal when the bonds matures, but multiple payments of interest over the life of the bond.

make a single payment of interest and principal.

make multiple payments of principal, but a single payment of interest.

make a single payment of principal at the time the bond is issued and multiple payments of interest over the life of the bond.

You purchase a two-year $1000 face value bond at par. The bond has a 6% coupon rate.However, do to cashflow problems, the company misses the first coupon payment, but pays both coupons payments in year 2. What is your rate of return?

0.0583

0.0653

0.0300

0.0600

0.0428

Using the information, in the previous question, suppose the company pays all of the coupon payments on time. What is your rate of return?

0.1200

0.0600

0.0300

0.0500

0.0800

What is the price of a coupon bond that has annual coupon payments of $75, a par value of $1000, a yield to maturity of 5%, and a maturity of two years?

$1043.08

$1046.49

$1000.00

$1150.00

You purchase a two-year $1000 face value bond at par. The bond has a 6% coupon rate.However, do to cashflow problems, the company misses the first coupon payment, but pays both coupons payments in year 2. What is your rate of return?

0.0583

0.0653

0.0300

0.0600

0.0428

Someone offers you the following deal. They will pay you $5000 in two years if you agree to pay them $4500 today. If you accept the deal, what is your rate of return?

0.0731

0.0541

0.1111

0.0342

Explanation / Answer

Issuers of coupon bonds make a single payment of principal when the bonds matures, but multiple payments of interest over the life of the bond. The bond are issued with a maturity period and are considered as part of debt of the company. These bonds have a face value and when purchased asks for return in the form of interest at a specified date. The interest payments have to made compulsarily till the maturity period of the bond. The interest payments are to be made irrespective of the financial health of the company.

Therefore the correct option is issuer of the bond make only a single payment of principal when the bonds matures, but multiple payments of interest over the life of the bond. The bonds returns are paid in terms of interest by the issuer of the bond.

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