Question

use a financial calculator

You are given the following information concerning a noncallable, sinking fund debenture:

• Principal: $1,000
• Coupon rate of interest: 6 percent
• Term to maturity: 13 years
• Sinking fund: 3 percent of outstanding bonds retired annually; the balance at maturity

1. If you buy the bond today at its face amount and interest rates rise to 11 percent after five years have passed, what is your capital gain or loss? Assume that the bond pays interest annually.. Use a minus sign to enter the loss amount, if any, as a negative value. Round your answer to the nearest dollar.

   $  

2. If you hold the bond 13 years, what do you receive at maturity?

   -Select-Principal/ All coupon payments

3. What is the bond's current yield as of right now? Round your answer to the nearest whole number.

     %

4. Given your price in a, what is the yield at maturity? Round your answer to the nearest whole number.

     %

5. What proportion of the total debt issue is retired by the sinking fund? Round your answer to the nearest whole number.

     %

6. If the final payment to retire this bond is $1,100,000, how much must the firm invest annually to accumulate this sum if the firm is able to earn 6 percent on the invested funds? Round your answer to the nearest dollar.

   $  

Answer 1

a) Capital gain = $257.34

b) if bonds hold for 13 years maturity value $1000, yearly interest $ 60.

c) Bonds current yield = 6%

d) Yield to maturity = 11%

f) lumsum invested= $515,729.75

Equal amounts invested= $58,032.18

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