Key Features of a Bond

Watters Umbrella Corp. issued 20-year bonds 2 years ago at a coupon rate of 8.4 percent. The bonds make semiannual payments. If these bonds currently sell for 90 percent of par value, what is the YTM? (Do not round intermediate calculations and enter your answer as a percent rounded to 2

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

1(a) Regular Treasury bonds are purchased at face value in the beginning or an adjusted price prior maturity. And in every period, normally annul or semiannual, investor will receive a coupon as an interest and at the maturity a principal plus coupon.

At what price will the bonds issue? (Do not round PV factors. Round your answer to the nearest dollar amount. Omit the "$" sign in your

From the point of view of the income statement, the current year earnings would decrease by $2.24 million ($11.54million - $9.3 million).

∆P/P = –D*(∆y) D* = D/(1 + y) = 7/1.073 = 6.52 ∆P/P = –D*(∆y) = –6.52(–0.09%) = .59% New price = $1,073(1.0059) = $1,079.33 Learning Objective: 11-02 Compute the duration of bonds; and use duration to measure interest rate sensitivity.

Assuming the market interest rate on the issue date is 6%, the bonds will issue at $537,194.

The Yield to Maturity (YTM) of a bond is:   Interest rate that makes the present value of the bond’s

What coupon rate should AirJet Best Parts set on its new bonds to sell them at par value?

The bonds have 20 years to maturity, pay interest at 9.3%, have a par value of $1,000 and are currently selling for $890.

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

Since the interest payments are tax deductible, the aftertax cash flow from the interest payments will be:

Through this method, we obtained theoretical yields of the 4.25% coupon bond and 10.625% coupon bond to be 2.899% and 2.639% respectively. The corresponding theoretical prices of the bonds are $108.27 for the 4.25% coupon bond and $149.31 for the 10.625% coupon bond (see Table 1 above).

Bond valuation is a technique for determining the fair value of a particular bond and includes calculating the present value of the bond's future interest payments and the bond's value upon maturity (Investopedia , 2017). After calculations, Wesfarmers Limited bonds were valued at $120.38 whereas Woolworths Limited bonds was valued at $117.93 within three years based on a par value of $100.00. See Appendix C, Figure I for workings.

Bond Discount represents an additional cost of borrowing and should be recorded as bond interest expense over the life of the bond. To follow the matching principle, bond discount is allocated to expense in each period in which the bonds are outstanding. This is referred to as amortizing the discount. Amortization of the discount increases the amount of interest expense reported each period. As the discount is amortized, its balance will decline and as a consequence, the carrying value of the bonds will increase, until at maturity the carrying value of the bonds equals their face amount. The journal entries are as follow: