Problem
Five years ago, Sugar Ltd. raised $35 million by issuing 15-year corporate bonds at $1,000 par value that carries a coupon rate of 8 percent payable semi-annually. Yield to maturity equals the coupon rate at issue.
1. Calculate the number of the 15-year coupon bonds that Sugar Ltd. issued to raise the $35 million five years ago. What will be the company's repayment be at the maturity date of the 15-year coupon bonds?
2. Last year, you purchased 200 corporate bonds of Sugar Ltd. at an effective rate of return of 12 percent. What was the bond price last year?
3. Based on your answer in part (b), you are forced to sell the bond today due to financial emergency. If the current yield to maturity falls by 1 percent, determine whether this corporate bond is sold at par, premium or discount. No calculation for current bond price is needed.
4. In general, bond market has a lower trading intensity than stock market. Due to a certain factor, the return on bond will be affected. Name and describe this factor that determines the required return on bond.