Answer and Explanation:
The computation is shown below:
a. The principal amount is $1,000
The term is 3 years
The coupon rate is 6%
So, the coupon payment is
= $1,000 × 6%
= $60
b. At the closing of the second year, the remaining amount i.e. paid should be
= $1,000 + $60
= $1,060
Now if the rate of interest is 3%
So, the amount of $1,060 one year from today is
= $1,060 ÷ 1.03
= $1,029
And, if the rate of interest is 8%
So, the value of the bond today is
= $1,060 ÷ 1.08
= $981
And, if the rate of interest is 10%
So, the amount of the today bond is
= $1,060 ÷ 1.10
= $964
c. In the case of the bad news related to the amalgamated corporation
that results in the financial investors to have terror that the firm may be go to bankrupt because of non -payment of debt. In the case when the amount of $1,060 is not made so the financial investor would not be pay $1,000 as they are well known that they can earn 6% without have any risk
