a) The issuer of bond will take into consideration certain factors for deciding the coupon rate like:

• Required rate of return
• Yield to maturity
• Bond’s riskiness

Also the interest rates that are prevailing at the time of issuance of bond will be also be considered as interest rates in market changes over the time (higher or lower) and affects the bonds coupon rate simultaneously.

b) The required return on the bond is the minimum or lowest rate of return which is expected by bond holder to be earned while coupon rate is the actual or real amount of interest income that is earned on the bond every year based on bond’s face value.

c) When the zero coupon bonds mature then the bondholder receives the amount which is equivalent to the bond’s face value. The advantage of zero coupon bonds to investor is:

• No reinvestment risk
• Fixed returns
• Long time prospect

The advantage of zero coupon bonds to corporation is:

• No yearly payments are required to be made to buyers.
• Allows the corporation to focus for long term by overlooking the short term fluctuations of the income.
• The firm is not dependent on the interest rates variations in the market during the bond’s tenure.

d) The cash flow statement shows the inflows and outflows of cash during a given accounting period. Three main categories are:

1) Cash from operating activities - The items that will increase the overall cash balance will be all the inflows (money received) from the main business activities of the company. The more numbers of such items in cash provided by operation will lead to positive cash flows for the company. If the assets balance increases then overall cash flow will decrease and vice versa. Also if the liabilities balance increase then there will be an increase in overall cash flow and vice versa. The increase in cash flow is good indicator of company’s position to pay off its debts or to provide return to shareholders and also helps to be prepared for any upcoming future challenges whereas negative cash flow indicates the poor sign of management.

2) Cash from investing activities - The positive balance is a bright sign for the company’s future growth while the negative balance indicates that poor assets purchasing decision have been made and shall be taken as a warning sign. The sources of cash flow from investing activities can vary depending upon the company’s purchase (reduce the balance) and selling (increase the balance) made within the year. So the items that increase the cash will be source of cash while the balance in bracket will indicate the cash actually used by company.

3) Cash from financing activities - The cash flow from financing shows that the balance that is used to fund the company. The balance is negative as the mostly the money is used to pay dividends, paying own debts and taxes. The negative cash flows from the financing activities shows the decline in long term borrowing, that can be viewed as positive sign as the company is able to retire its debt obligations.