aspens is preparing a bond offering with an 8% coupon rate. The bonds will be re

Question

aspens is preparing a bond offering with an 8% coupon rate. The bonds will be repaid in 10 years. The compnay plans to issue the bonds at par value and pay interest semiannually. Which statements are true.

a) the intial selling price is $1000 ea

b) after the bonds have been outstanding for 1 year use 9 as the # of compounding periods when calculating the market value of the bond.

c) each interest payment is $40

d) the yeild to maturity when bonds are first introduced is 8%

1-a and b

2-b and c

3-a, b, and c

4-a, c, and d

Explanation / Answer

I use a TI-84 calculator under Apps, Finance, TVM Solver.

You know A is correct because it says that the company plans to issue the bonds a par value, which means they will be $1000.

Now you are between 1, 3, and 4.

You know C is correct because the coupon rate is 8% and the payments are semiannual. So, $1000 (default face value) * .08 = $80 / 2 = $40 per payment.

Now you are between 3 and 4

You know D isn't correct because you can calculate the YTM.

N=20

I=? --> 9.928% (after calculation)

PV = -1000

PMT = 40 (from coupon rate/2 for semiannual payments)

FV=0

P/Y=2

So, the answer is 3!

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