Question
A company just issued a 5 year bond for a price of $ 100 that pays coupons every 6 months . The coupon rate is
A company just issued a 5 year bond for a price of $100 that pays coupons every 6 months. The coupon rate is 3 percent per annum, the yield is 3 percent per annum and the principal is $100. The bond buyer was also a company. Both the buying and selling companies are subject to a 30% corporate tax rate.
Which of the following statements is NOT correct? All things remaining equal, per one bond, every 6 months:
Select one:
a. The coupon paid will be $1.50.
b. The tax-deductible interest expense for the issuing company will be $1.50.
c. The extra interest tax shields generated for the issuing company due to the bond will be $1.50.
d. At the instant that the coupon is paid the bond price will fall by the amount of the coupon.
e. Just after the coupon is paid, the price is expected to be the same as the price 6 months earlier just after that previous coupon was paid.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started