Compute what should be the price of the bond

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A bond has the following features:

Coupon rate of interest (paid annually): 11 percent

Principal: $1,000

Term to maturity: 8 years

Problem 1: What will the holder receive when the bond matures?

Problem 2: 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.

Problem 3: Would you expect the firm to call this bond? Why?

Problem 4: 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 eight years if the funds earn 8 percent annually and there is $80 million outstanding?

Reference no: EM132993215

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