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Problem 13-09

A bond has the following features:

Coupon rate of interest (paid annually): 5 percent

Principal: $1,000

Term to maturity: 9 years

What will the holder receive when the bond matures?

-Select-PrincipalAll coupon paymentsItem 1

If the current rate of interest on comparable debt is 8 percent, what should be the price of this bond? Assume that the bond pays interest annually. Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar.

$

Would you expect the firm to call this bond? Why?

-Select-YesNoItem 3 , since the bond is selling for a -Select-discountpremiumItem 4 .

If the bond has a sinking fund that requires the firm to set aside annually with a trustee sufficient funds to retire the entire issue at maturity, how much must the firm remit each year for nine years if the funds earn 8 percent annually and there is $100 million outstanding? Use Appendix C to answer the question. Round your answer to the nearest dollar.

$