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DOn January 1, 2019, Monarch Enterprises issued 8% bonds dated January 1, 2019, witha face amount of $10 million. The bonds m
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Answer #1

(a) Face Value = $ 10 million, Bond Tenure = 2025 - 2019 = 6 years, Yield = 10%, Coupon Rate = 8 %

Annual Interest Payment = Coupon = 0.08 x 10000000 = $ 800000

(b) Bond Price = 800000 x (1/0.1) x [1-{1/(1.1)^(6)}] + 10000000 / (1.1)^(6) = $ 9128947.86 million

(c) As the bond price is lower than the bond's face value, the bond sells at a discount. This happens because the bond's offered return (coupon rate) is lower than the bond's required return (yield) and the bond investors need to be compensated for this lower rate of return by selling the bond at a discount.

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