Posts Tagged ‘corporate bonds par value’
Corporate Bonds Par Value
April 23rd, 2006
Question: Corporate Finance Question for an Expert?
A newly issued bond has a 7 percent coupon with semiannual interest payments. The bonds are currently priced at par value. The effective annual rate provided by these bonds must be:
A. 3.5 percent.
B. greater than 3.5 percent but less than 7 percent.
C. 7 percent.
D. greater than 7 percent.
E. Answer cannot be determined from the information provided.
Any Clue?
Thats really good help but I am looking more for a letter answer...
Answer: Certainly we have a clue.
Let's say the bond had annual payments of 7%. What would the effective annual rate be? Answer: 7%.
But this bond pays interest semianually. So you get half your money six months early. As time is money, when one option pays money earlier than another, it's more valuable. So if annual payments have an effective rate of 7%, semiannual payments have a rate (if you can't fill in the blank here, then corporate finance is not for you).
Geithner's crimes through AIG : will the truth come out?
Posted in 
Tags: 