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(14 marks) YMMV Inc. issues a 26 year bond with a 1.500% coupon and a $5,000,000.00 face value. The yield rate on the bond is
(14 marks) YMMV Inc. issues a 26 year bond with a 1.500% coupon and a $5,000,000.00 face value. The yield rate on the bond is 8.000% compounded quarterly. They will set up a sinking fund with quarterly deposits and an interest rate r(4) = 5.250%. a) How much are the quarterly deposits into the sinking fund? b) YMMV defaults on the bond at the end of year 24 (But they still make the last coupon payment and sinking fund deposit!). What is the price of the bond at the time they default? c) How much is in the sinking fund at the time of default? How much money do the bondholders end up losing? (They get to keep the sinking fund money.)
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