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
a. $400 ; 40%; four years
b. $10,000; 4%; four years
c. $10,000; $400; 4% d. $10,400; 4%; four years

The correct answer is "B. $10,000; 4%; four years".

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 $10000, the coupon rate is 4%, and the term of this bond is four years.

Explanation: The maturity of the bond is at 4 years.

Its future value or face value is 10000.

The coupon rate is equal to x 100

So Coupon rate = x 100 = 4%

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