Aspens 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

The bonds are issued at par value, so the initial selling price is $1,000 (I). Each interest payment is $40 because the 8% annual coupon rate is divided into two semiannual payments (III). The yield to maturity at issuance is the same as the coupon rate, 8%, since they are issued at par (IV).

Aspens Is Preparing a Bond Offering with an 8% Coupon