1. A company issued 10,000 5-year bonds. Each bond has a par value of $1,000 and
ID: 2788457 • Letter: 1
Question
1. A company issued 10,000 5-year bonds. Each bond has a par value of $1,000 and has a coupon rate of 4.5%. On the day the bonds were issued, the prevailing market interest rate was 4.5%
a) What is the coupon payment amount that each bondholder will receive every six months?
b) How much cash must the company pay in total coupon payments every six months?
c) On the day they were originally issued, did the bonds sell at par, above par, or below par?
d) How much total cash did the company receive on the day it issued the bonds?
e) How much total cash must the company pay (for the principal) on the day the bonds mature?
Explanation / Answer
Answer 1 Coupon payment per bond=4.5/2% of 1000
Coupon payment=2.25% of 1000=$22.5 per Bond
Answer 2 Total coupon payment every 6 month=coupon per bond×Number of Bond
Total coupon payment every 6 month=22.5×10,000=225,000
Answer 3. since Market Interest rate=Coupon Rate
Bond will be issued at par par
Answer 4
Using financial calculator
FV=1000 [Press Enter]
PMT=22.5 [Press Enter]
I/Y=4.5/2 [Press Enter] since bond is semi annual bond
N=5×2=10 [Press Enter]
Press CPT and PV
PV=1000
Total cash received=Bond value×Number of Bond
Total cash received=1000×10,000
Total cash received=10,000,000
Answer 5 Total cash payment at maturity willl be par value =1000
Total cash Paid=Par value×Number of Bond
Total cash Paid=1000×10,000
Total cash Paid=10,000,000
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