Chap 6 Accounting Class Notes

The value of a bond is found as the present value of interest payments plus

Southlake Corporation issued $900,000 of 8% bonds on March 1, 20X1. The bonds pay interest on March 1 and September 1 and mature in 10 years. Assume the independent cases that follow.

8. Karen has $16,000 that she wants to invest for 1 year. She can invest this amount at The North Bank and earn 5.50 percent simple interest. Or, she can open an account at The South Bank and earn 5.39 percent interest, compounded monthly. If Karen decides to invest at The North Bank, she will:

24. Mobilee Oil Company accepted a $10,000, 120-day note, dated March 3, at 8.5% to settle a past due accounts receivable. Mobilee Oil discount the note to raise cash on May 10 at a discounted rate of 9%. What proceeds did Mobilee Oil receive?

As part of the expansion plan, Wie will acquire some used equipment by signing a zero-interest-bearing note. The note has a maturity value of $50,000 and matures in 5 years. A reliable fair value measure for the equipment is not available, given the age and specialty nature of the equipment. As a result, Wie 's accounting staff is unable to

c) The present value of $500 to be received in one year when the opportunity cost rate is 8 percent (discounting):

5. (TCO B) You sold a car and accepted a note with the following cash flow stream as your payment. What was the effective price you received for the car assuming an interest rate of 6.0%?

The original mortgage of the house was signed by 103,190 considering thirty years of mortgage and 9.25% and applying the Net Present Value principle the year payment is: 10267.

Southlake Corporation issued $900,000 of 8% bonds on March 1, 20X1. The bonds pay interest on March 1 and September 1 and mature in 10 years. Assume the independent cases that follow.

At the end of period 10 years, Bond W also pays back the par value of $1,000. Then the total payment was determined to be $1035 because of the sum of $1,000 and $35.Then, it was determined that Bond Y has cash flows of 0.09($1,000) / 2 = $45 for semiannual periods from periods 1 to 8 years. At the end of period 8 years, Bond Y also pays back the par of $1,000 for a total payment of $1,000 + $45 = $1,045.

3. Assume that 11% is the market rate of interest in on January 1, 1975. Compute the present value at January 1, 1975 of all payments that will be made on

Calculate the Nominal Payback, the Discounted Payback, the Net Present Value and the IRR assuming:

4. Determining Interest and Approximate Bond Value. Assume that three years ago, you purchased a

b. Generate a graph or table showing how the bond’s present value changes for semi-annually compounded interest rates between 1% and 15%.

Assume that the annual payments in the sixth year is equal to the rental payment in the fifth year ( 112.9 and 86.0) and the remainder of the lump sum values (54.6 and 17.8) is due in the seventh year. With a discount rate of 5.4%, the present values of the rental payments for the years 2006 and 2007 are as follows: