a. A firm issues a zero-coupon bond with a face value of $1,000, maturing in five years.

Question:

a. A firm issues a zero-coupon bond with a face value of $1,000, maturing in five years. Bonds with similar risk are currently yielding 5 percent per year. What is the value of the bond?

b. A firm issues a bond with a face value of $1,000 and a coupon rate of 5 percent per year, maturing in five years. Bonds with similar risk are currently yielding 5 percent per year. What is the value of the bond?

c. A firm issues the same bond as in part (b) but with an annual coupon rate of 4 percent per year. What is the value of the bond?

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...