Fred purchases a bond, newly issued by the big time corporation, for $10,000. the bond pays $400 to its holder at the end of the first, second, and third years and pays $10,400 upon its maturity at the end of four years. the principal amount of this bond is the coupon rate is and the term of this bond is . $400; 40%; four yearsb. $10,000; 4%; four yearsc. $10,000; $400; 4%d. $10,400; 4%; four years

Option(d) is correct.

Explanation:

Given that,

Purchases a bond = $10,000

Bond pays at the end of the first, second, and third years = $400

Bond pays upon its maturity at the end of four years = $10,400

(i) Principal amount of this bond = $10,000

It is the issue price of the bond.

(ii) The coupon rate of the bond =

                                                     =

                                                     = 4% per year

(iii) The term of this bond is 4 years, as it was matured after 4 years.

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