Pakistan Cables offers 5-Year bonds with 8% coupon (semiannual interest payment). Redemption value is Rs: 1200. Inflation risk premium on these bonds is current inflation rate plus 2%, and default risk premium of Pakistan Cables is 3% followed by 2.5% of industry risk premium. Determine the annual interest for 5-Years bonds issued by Pakistan Cables?  What could be the impact of above situation on coupon interest rate and discount rate on these bonds.  What could be the impact of above situation on coupon interest rate and discount rate on these bonds if the coupon on these bonds is Current inflation plus 5%.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Pakistan Cables offers 5-Year bonds with 8% coupon (semiannual interest payment). Redemption value is Rs: 1200. Inflation risk premium on these bonds is current inflation rate plus 2%, and default risk premium of Pakistan Cables is 3% followed by 2.5% of industry risk premium.

  • Determine the annual interest for 5-Years bonds issued by Pakistan Cables? 
  • What could be the impact of above situation on coupon interest rate and discount rate on these bonds. 
  • What could be the impact of above situation on coupon interest rate and discount rate on these bonds if the coupon on these bonds is Current inflation plus 5%. 
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