Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Meetings Expositions Events And Conventions An Introduction To The Industry

Authors: George G. Fenich

4th Global Edition

1292093765, 9781292093765

More Books

Students also viewed these Finance questions

Question

5 Make smart decisions about your employee benefi ts.

Answered: 1 week ago