French Fortunes is preparing a bond offering with an 8% coupon rate. The bonds will be repaid in 10 years.The company plans to issue the bonds at par value and pay interest semiannually.Given This, which of the following statements are correct?
I.The initial selling price of each bond will be €1,000.
II.After the bonds have been outstanding for 1 year, you should use 9 as the number of
Compounding periods when calculating the market value of the bond.
III.Each interest payment per bond will be €40.
IV.The yield to maturity when the bonds are ﬁrst issued is 8%.

Question

Quizplus · Accepted Answer

- I is correct because bonds issued at par value typically have an initial selling price of €1,000.- III is correct because with a coupon rate of 8% and semiannual payments, each payment would be (8%/2) * €1,000 = €40.- IV is correct because when bonds are issued at par, the coupon rate equals the yield to maturity, which is 8% in this case.

French Fortunes Is Preparing a Bond Offering with an 8