The Garcia Company’s bonds have a face value of $1,000, will mature in 10 years, and carry a coupon rate of 16 percent. Assume interest payments are made semiannually.
To determine the interest payments and the maturity value of the Garcia Company bonds, we need to consider the coupon rate, semiannual payments, and the bond's face value.
Step 1: Calculate the semiannual coupon payment:
First, we divide the annual coupon rate by two to account for semiannual payments:
Coupon rate = 16% / 2 = 8% (expressed as a decimal)
Next, we multiply the semiannual coupon rate by the face value of the bond:
Coupon payment = 8% * $1,000 = $80
Therefore, each semiannual interest payment on the Garcia Company bond will be $80.
Step 2: Determine the total number of coupon payments:
Since the bond has a maturity period of 10 years and semiannual payments are made, the number of coupon payments will be 2 * 10 = 20.
Step 3: Calculate the maturity value:
The maturity value of a bond is equal to its face value. In this case, the face value is given as $1,000.
So, the maturity value of the Garcia Company bond will also be $1,000.
Overall, the bonds will pay a total of 20 semiannual coupon payments of $80 each and will have a final maturity value of $1,000 after 10 years.
P = Po*(1+r)n
Po = $1,000
r = (16%/2)/100% = 0.08 = Semi-annual %
rate.
n = 10yrs. * 2comp./yr = 20 Compounding periods.
P = 1000(1.08)^20 = $4660.96
I = P-Po