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Ajax Corp issued 25 year bonds in 2002 with a coupon rate of 6% and a face value of $1,000. The bonds sold for face value when issued.

Ajax Corp issued 25 year bonds in 2002 with a coupon rate of 6% and a face value of $1,000. The bonds sold for face value when issued. Since 2002, interest rates have increased, so the going rate on similar bonds is now 9%. Which of the following statements is most accurate?

a. An investor who purchased an Ajax bond in 2002 and plans to keep the bond until it matures expects to earn 6% per year over the life of the bond.
b. Ajax Corp must now pay bondholders interest payments of $90 per year due to the increase in interest rates.
c. An investor who purchased an Ajax bond in 2002 and plans to keep the bond until it matures expects an increase in return from 6% per year to 9% per year.
d. The price of an Ajax Corp bond should be higher than $1,000 due to the increase in rates.

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Finance-7620989.doc

Ajax Corp issued 25 year bonds in 2002 with a coupon rate of 6% and a face value of
$1,000. The bonds sold for face value when issued. Since 2002, interest rates have
increased, so the going rate...

Sign up to view the full answer

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