Question

1. Suppose your firm issues a 4-year corporate bond of $2,000,000 with a coupon interest rate of 6% per annum.

a. If the bond is annual pay, how often does your firm pay interest?

b. How much interest do you pay with each "coupon" payment?

c. When does your firm repay principal, and how much?

2.

a. If the bond is semiannual pay, how often does your firm pay interest?

b. How much interest do you pay with each "coupon" payment.

c. When does your firm repay the principal, and how much?

Answer 1

Answer 1-a.

Firm pays interest once per year.

Answer 1-b.

Face Value = $2,000,000
Annual Coupon Rate = 6%

Annual Coupon Payment = $2,000,000 * 6%
Annual Coupon Payment = $120,000

Answer 1-c.

Firm will repay $2,000,000 after 4 years.

Answer 2-a.

Firm pays interest twice per year.

Answer 2-b.

Face Value = $2,000,000
Annual Coupon Rate = 6%
Semiannual Coupon Rate = 3%

Semiannual Coupon Payment = $2,000,000 * 3%
Semiannual Coupon Payment = $60,000

Answer 2-c.

Firm will repay $2,000,000 after 4 years.

answered by: anonymous