3. Bond prices and interest rates Pacific Amalgamated (PA) issues 10-year bonds in 2011 with a $2,000 face value and a $100 coupon. The interest rate at which PA issues these bonds is . When the bond reaches maturity in 2021, how much will each investor holding one of these PA bonds receive

5%

$2100

Explanation:

At maturity, the bond principal amount along with that year coupon payment will be made. The rest coupon payments will be already made in previous subsequent years.

Interest rate = coupon amount / Bond face value * 100

Interest rate = 100 / 2000 * 100 = 5%

The investor will receive “the initial investment of 2000$ plus 100$ for the 10th coupon”

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