Problem 13-09

A bond has the following features:

• Coupon rate of interest (paid annually): 7 percent
• Principal: $1,000
• Term to maturity: 10 years

1. What will the holder receive when the bond matures?

   -Select-PrincipalAll coupon paymentsItem 1

2. If the current rate of interest on comparable debt is 9 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 .

3. 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 ten years if the funds earn 9 percent annually and there is $100 million outstanding? Use Appendix C to answer the question. Round your answer to the nearest dollar.

   $