Question

A & C Corporation’s US$1,000 Face Value Bonds have a coupon rate equal to 6 percent. If the bonds mature in 10 years, for what price should they be selling in the financial markets if similar bonds offer an 8 percent Rate of Return?

3.             What is sinking fund?

4.             Suppose you are considering investing in a 20 – year, 11 percent coupon bond that has a US$1,000 face value and pays interest semiannually. If the market Rate of Return is 8 percent, what is the market value of the bond?

Answer 1

1.
Assuming annual coupons, Price=(6%*1000)/8%*(1-1/(1+8%)^10)+1000/(1+8%)^10=865.798372

2.
A fund established by setting aside some amount over a period to fund repayment of a long-term debt or future capital expense

3.
Market value=(11%*1000/2)/(8%/2)*(1-1/(1+8%/2)^(2*20))+1000/(1+8%/2)^(2*20)=1296.891608