Say that in June of this year, a company issued bonds that are scheduled to mature in

Question:

Say that in June of this year, a company issued bonds that are scheduled to mature in three years in June. The coupon rate is 5.75 percent and is paid semiannually. The bond issue was rated AAA.

a. Build a spreadsheet that shows how much money the firm pays for each interest rate payment and when those payments will occur if the bond issue sells 50,000 bonds.

b. If the bond issue rating would have been BBB, then the coupon rate would have been 6.30 percent. Show the interest payments with this rating. Explain why bond ratings are important to firms issuing capital debt.

c. Consider that interest rates in the economy increased in the first half of 2012. If the firm would have issued the bonds in January of this year, then the coupon rate would have only been 5.40 percent. How much extra money per year is the firm paying because it issued the bonds in June instead of January?

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...