Use excel or financial calculator
A bond has the following features:
What will the holder receive when the bond matures?
-Select-Principal/ All coupon payments
If the current rate of interest on comparable debt is 8 percent, what should be the price of this bond? Assume that the bond pays interest annually. Round your answer to the nearest dollar.
$
Would you expect the firm to call this bond? Why?
-Select-Yes/No , since the bond is selling for a -Select-discount/premium.
If the bond has a sinking fund that requires the firm to set aside annually with a trustee sufficient funds to retire the entire issue at maturity, how much must the firm remit each year for ten years if the funds earn 8 percent annually and there is $120 million outstanding? Round your answer to the nearest dollar.
$
A) A holder will receive the principal amount when the bond matures.
B) Principal (FV) = $ 1,000
Period (nper) = 10 years
Rate (rate) = 8%
Coupon (pmt) = 12% * 1,000
= $ 120
Using the PV function in the excel sheet, we can calculate the price of the bond as:
= PV(rate, nper, -pmt, -fv)
= PV(8%, 10, -120, -1000)
= $ 1,268.40
Yes the firm would expect to call this bond as it is selling for premium.
C) The firm should remit the following amount each year:
= Amount Outstanding / Future Value of Annuity Factor
= 120,000,000 / (((1 + i) ^ n – 1) / i)
= 120,000,000 / (((1 + 0.08) ^ 10 – 1) / 0.08)
= 120,000,000 / ((2.1589 - 1 ) / 0.08)
= 120,000,000 / 14.4863
= $ 8,283,538.64 or $ 8,283,539
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