A) A company has issued 10-year bonds, with a face value of $1,000,000 in $1000 units. Interest at 8% is paid quarterly. If an investor desires to earn 12% nominal interest (compounded quarterly) on $10000 worth of these bonds, what would the purchase price have to be? (5.3)

Question

B) If the company plans to redeem these bonds in total at the end of 10 years and establishes a sinking fund that earn 8%, compounded semi-annually, for this purpose, what is the annual cost of interest and redemption? (5.5)

Answer 1

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