A firm issues $200 million in ten-year bonds with an annual coupon rate of 6%.The firm uses a sinking fund to repurchase 8% of the bond issue on each coupon payment date.What payment must they make on the tenth and final coupon payment date?

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The firm repurchases 8% of the original $200 million bond issue each year. Over 9 years, this amounts to 72% (8% * 9 years) of the bonds being repurchased, leaving 28% of the bonds to be repaid on the tenth year. 28% of $200 million is $56 million. However, on the tenth and final coupon payment date, the firm must also pay the final year's 6% coupon on the original $200 million, which is $12 million ($200 million * 6%). Therefore, the total payment on the tenth year is $56 million + $12 million = $68 million.

A Firm Issues $200 Million in Ten-Year Bonds with an Annual