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(solution) You have just been offered a bond for $863.73. The coupon rate is 8 percent payable annually, and...


You have just been offered a bond for $863.73. The coupon rate is 8 percent payable annually, and interest rates on new issues with the same degree of risk are 10 percent. You want to know how many more interest payments you will receive, but the party selling the bond cannot remember. If the par value is $1,000, how many interest payments remain? ( LG 3-2 ) ( LG 3-2 ) Bond Valuation Formula Used to Calculate Fair Present Values Most bonds pay a stated coupon rate of interest to the holders of the bonds. These bonds are called coupon bonds. The interest, or coupon, payments per year, INT, are generally constant (are fixed) over the life of the bond. 5 Thus, the fixed interest payment is essentially an annuity paid to the bond holder periodically (normally semiannually) over the life of the bond. Bonds that do not pay coupon interest are called zero-coupon bonds. For these bonds, INT is zero. The face or par value of the bond, on the other hand, is a lump sum payment received by the bond holder when the bond matures. Face value is generally set at $1,000 in the U.S. bond market.  

 

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