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(Solved): a. Suppose the company that issued the bond A is having cash flow problems and has asked its bon ...



a. Suppose the company that issued the bond A is having cash flow problems and has asked its bondholders to accept the following deal: Instead of making the scheduled semi-annual coupon payments, the firm will pay $100 coupon payment every other year till the bond matures. In other words, there will be four $100 coupon payments, one each at the end of year 2, year 4, year 6, and year 8. Due to changes in market condition, the EAR (effective annual rate) of the bond is now 6%. If this plan is implemented, what is the market value of this bond today?



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