Features of Bo-knows Enterprises Bond and Stock
Amount of debt issue $100 million Security None
Date of issue 6/1/90 Sinking Fund Annual, beginning 6/1/2000
Maturity 6/1/20 Call Provision callable after 6/1/2015
Face Value $1000 Call Price 102%
Annual Coupon 9 % Rating Moody’s Aa
Offer price 100% Junior Note
a. At the time of its IPO, If the company were to issue a similar bond but without a sinking fund, should the coupon rate be the same or lower or higher? Briefly explain.
b. In March 2011, the yield of similar risk bonds was 7%, what was the price of this bond then?
c. In 2012, the yield on bonds of similar risk bonds decreased to 6%, what was the price of this bond then?
d. Suppose you purchased this bond in 2011 and sold it in 2012. Did you make a good investment? What is your return?