Problem
Consider the following financial statement for 2016 and 2017:
|
2017
|
2016
|
|
7% debentures, $300 million face value, due in 2025, effective rate 14%
|
$ 186.4m
|
$ 182.9m
|
|
Zero coupon bond, $500 million face value, due in 2019, effective rate 12%
|
$ 260.7m
|
$ 282.1m
|
|
Mortgage debt, $850 million face value, due in 2033, effective rate 8%
|
$ 834.8m
|
$ 845.7m
|
|
Total Debt
|
$1,281.9m
|
$1,310.7m
|
Based on the financial statement, please explain the following:
1. Why does the debenture bond have a higher interest rate than the mortgage debt?
2. How much interest did the company pay during 2017 for the debenture bond?
3. How much principal was paid off from 2016 to 2017 for the debenture bond?
4. How much of the principal was paid off for the Mortgage bond from 2016 to 2017?
5. How much interest did the company pay during 2017 for the zero coupon bond?