Bonds Mini Case
A. What are the key features of a bond?
A bond is a long-term contract under which a borrower agrees to make payments of interest and principle, on specific dates, to the holders of the bond.
The key features of the bond are as follows:
1. Par Value: The par value is the stated face value of the bond. It generally represents the amount of money the firm borrows and promises to repay on the maturity date.
2. Coupon Interest Rate: The coupon interest is obtained by dividing the coupon payment by the par value of the bond. The coupon payment is a fixed dollar amount of interest, which paid to a bondholder each year. This payment established at the time the bond is issued.
• Floating-rate bonds: If a bond's coupon payment is vary over time, such bonds are called floating rate, or indexed, bonds. The coupon rate is set for the initial six-month period, after which is adjusted every six months based on market rate.
• Zero coupon bonds: If bonds pay no coupons at all, but are......
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