A corporate bonds has a face value of $1000 with maturity date 20 years from today. The bond pays interest semiannually at a rate of 8% per year based on the face value. The current effective annual market interest rate is 10.25%. Determine today's purchasing price for this bond.

A corporate bonds has a face value of $1000 with maturity date 20 years from today. The bond pays interest semiannually at a rate of 8% per year based on the face value. The current effective annual market interest rate is 10.25%. Determine today's purchasing price for this bond.

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter10: Long-term Liabilities

Section: Chapter Questions

Problem 10.3E: Issue Price The following terms relate to independent bond issues: 500 bonds; $1,000 face value; 8%...

See similar textbooks

Related questions

Q: II. Engr. Roxas plans to deposit P20,000 in the bank now and P20,000 after 2 months. If he plans to ...

Q: Blue Co. has a debt to equity ratio of 25%. The company is funded by debt and common equity. The wei...

A: WACC weighted average cost of capital is the weight of equity multiply by cost of equity plus weight...

Q: If efficient markets hypothesis is correct, the price of a stock can be predicted ahead of time with...

A: Step 1 Stocks always trade at their fair value on exchanges, according to the EMH, making it impossi...

Q: NUBD is a manufacturer of Japanese pancakes. It's break-even sales is P250,000. It has a variable co...

A: Let total sales = S Variable cost = 75% of total sales = 0.75S Return on sales = 6% Let fixed cost =...

Q: As of December 31, 2021, Mr. Koekie Dano holds a 60-day. 10% note of P240,000 signed by Ms. Joy Ursu...

A: Data given: Koekie Dano holds 60 day, 10% note of P 240,000 Principal = P 240,000 n= 60 days i= 10%

Q: #2 Simple Interest 2. A loan of P5,000 is made for a period of 15 months at a simple interest rat...

A: Loan amount = P 5,000 Period = 15 Months = 15/12 Years Annual interest rate = 15%

Q: 3. Suppose that New Investors Inc. has the following investment alternatives: Alternatives Proba...

A: The expected return is the return of the portfolio which is the sum of each potential return that is...

Q: Investment at the end of year 2 3 4 5 6 7 Year Today 1 Cash Flow $100 +$200 +$300 +$400 +$500 +$600 ...

A: Initial investment (I) = $100 CF1 = $200 CF2 = $300 CF3 = $400 CF4 = $500 CF5 = $600 CF6 = $700 CF7 ...

Q: Problem 6. Find a portfolio of vanilla options written on the same stock that produces the following...

A: Bull spread: - Bull spread is an bullish strategy, it is being used when an investor is bullish on p...

Q: A bond with a par value of P1000.00 will mature in 7 years with a bond rate of 8% payable annually. ...

A: Yield to maturity (YTM) is the rate which an investor earns when the bond is held till its maturity.

Q: Current Attempt in Progress Which of the following statements is true? O The higher the discount rat...

A: Compound Interest = Principal Amount*(1 + r)n Given, Interest 10% Compounded annually. Principal = ...

Q: Agency problems may cause various corporate scandals. Explain why an agency problem exists in corpor...

A: An agency problem is a problem or a conflict of interest that arises in a relationship between the t...

Q: 8.15 Bond price: Marshall Company is issuing eight-year bonds with a coupon rate of 6.5 percent and ...

A: First we need to calculate bond price Bond Price =present value of all coupons +present value of fac...

Q: Common stocks for Daily Planet Advertising & News Corporation is just paid dividends of P11.50 per s...

A: The dividend amount of last year can be compared with the current year to estimate the constant grow...

Q: 1. Deposits of $113.00 are made at the end of every month for 10.5 years. What will the deposits amo...

A: Monthly deposit (P) = $ 113 Period = 10.50 Years Number of monthly payments (N) = 10.5*12 = 126 Annu...

Q: 5. A loan of $12,000 is to be repaid by three equal payments due today, two months from now, and one...

A: Borrowings are the liability that is used to finance the requirement of the funds. The borrower need...

Q: Simple Interest An amount of P200,000 is deposited for a period of 8 years. Compute the inter...

A: Deposit amount = P 200,000 Period = 8 Years Annual interest rate = 18%

Q: What would you pay for a $65,000 debenture bond that matures in 10 years and pays $9,100 a year in i...

A: A bond is an instrument that represents the loan that is made by the investor to the company and af...

Q: What is the difference between Cash Flow Risk and Interest Rate Risk? Please explain it clearly so t...

A: Risk is referred to as the possibility of the something unfortunate events. Risk used to involve an ...

Q: 1. Robert Russell earns a 3% commission on the sale of a $512,800 home. What is his commission?

A: Given: Sales = $512800 Commission = 3%

Q: Example : You want to buy a $18,500 car. The company is offering a 3% interest rate for 4 years. Wh...

A: The given problem relates to PMT formula in excel. PMT formula is used to compute equal payments for...

Q: Assume that the Canada Pension Plan promises you $60,000 per year starting when you retire 45 years ...

A: The value of the Pension plan can be calculated using the formula of the present value of annuity . ...

Q: Assumptions: (a) Mr. X has a limited cash balance of P1,000,000.00. (b) The buying price of the stoc...

A: Mr. X should sell stock to Mr. Y only if proceeds from sale cover all his costs associated with the ...

Q: Iou see a TV interviewer praising a CEO for several new product her company has developed. Should yo...

A: Buying of stock need analysis and data and performance of stock.

Q: Carrie took out a $48,000 student loan with a fixed interest rate to pay for college. Carrie did not...

A: Loan Amount is $48000..............(Present Value) Time period is 9 years Loan balance increased to ...

Q: The CFO of Blue Co. has collected the following information related to the firm’s cost of capital to...

A: Equity in Capital Structure = 75% Debt in Capital Structure = 25% YTM = 8% Tax Rate = 40%

Q: Monthly payment = $694.63 Interest Rate = 8% compounded monthly Mortgage Amount = $90,000 Compute th...

A: Given: Monthly payment = $694.63 Interest Rate = 8% compounded monthly Mortgage Amount = $90,000 Yea...

Q: Blue Co. has a debt to equity ratio of 25%. The company is funded by debt and common equity. The wei...

A: Debt to equity ratio = 25% Debt to capital ratio(D) = 0.25/(1+0.25) ...

Q: A bank offers a home buyer a 25-year loan at 7% per year. If the home buyer borrows $150,000 from th...

A: A study that proves that the future worth of the money is lower than its current value due to severa...

Q: If the risk-free rate of interest (r) is 9%, then you should be indifferent between receiving $500 i...

A: Interest Rate = 9% Time Period = 1 Year Future Value = $500

Q: ou are a proprietary trader under the FX Group of BDO Treasury Department. Due to the political and ...

A: We will buy foreign currency at ask rate and sell at bid rate.

Q: The average return on the Market is 12% while the market risk premium is 7%. What is the require rat...

A: The required rate of return is the minimum desired return by the investor. The required rate of retu...

Q: The asking price for the property is $1,330,000; rents are estimated at $170,240 during the first ye...

A: To know investor’s expected before-tax internal rate of return on equity invested first calculate pr...

Q: You secure a 20 -year FRM with an APR of 5.75 % on a mortgage loan of $ 190, 000 . Rounded to the ne...

A: An agreement through which a lender lends the money to the borrower, and has the right to take the p...

Q: Table A below provides selected information about the operations and financing policies of Eco 3. Th...

Q: A sum of $10,000 now (time 0) is equivalent to the following cash flow diagram. What is the value of...

A: The present value is the value of the sum received at time 0. It is the current value of the sum tha...

Q: Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year ...

A: Net Present value (NPV), Internal rate of return (IRR) and Modified internal rate of return (MIRR) a...

Q: If you want to have $7700 at the end of 9 years, how much money you need to deposit today into an ac...

A: Present Value refers to the value of cash flows today which is to be received at some future time gi...

Q: Junk bonds earn their name because Question 7 options: a) they are riskier than higher rated...

A: Junk bonds are the bonds or debt instrument whose credit rating is very low. Chances of default are ...

Q: B. J. Gautney Enterprises is evaluating a security. One-year Treasury bills are currently paying 2...

A: The expected return for stock refers to average outcome that can be realized from investment under d...

Q: You are the sales manager for Solar Panel Company. You receive a commission based on the total sales...

A: x = 2% commission on first $80000 sales y = 4% commission on $80000 to $160000 sales z = 5% commissi...

Q: You are thinking of building a new machine that will save you $1,000 in the first year. The machine ...

A: First year saving = $ 1000 Growth rate = -3% Interest rate = 5%

Q: You are given the following information. There are two countries, the US and Europe. It costs two do...

A: The spot exchange rate for the US dollar against the Euro is 0.02 because an inflation rate is two p...

Q: Valuation Using Price-to-NOA Multiple The following table provides summary data for Cerner Corporat...

A: Valuation is the process of finding the current worth of the company. The valuation can be done to d...

Q: What is the primary goal of financial management? Increase earnings Maximizing cash flow Maximizing ...

A: Hai there. Thanks for the question. Post has multiple sub parts. As per company guidelines expert ca...

Q: A state lotto has a prize that pays $1,700 each week for 15 years. Find the total value of the priz...

A: The given problem relates to concept of annuity. An annuity is a series of uniform cash flows over a...

Q: A bridge that was constructed at a cost of $80,000 is expected to last 50 years, at the end of which...

A: Capitalized cost is referred to as the present worth of the cash flows, which usually go for an infi...

Q: For the Ho-Lee model some perturbations are calculated to be h(1) = 1.1, h' (1) = 0.9, h(2) = 1.2 an...

A: The Ho-Lee Model simply has two parameters to parameterize the term structure: The short-term int...

Q: What is the future value (FV) of $60,000 in five years, assuming the interest rate is 5% per year?

A: A study that proves that the future worth of the money is lower than its current value due to severa...

Q: Real risk-free rate is constant at 2%. A particular long-term corporate security is quoted at 11.8%....

A: Return on any financial asset has many components, it includes a base rate which is the risk free re...

Question

Solve it correctly. I will rate.

A corporate bonds has a face value of
$1000 with maturity date 20 years from
today. The bond pays interest semiannually
at a rate of 8% per year based on the face
value. The current effective annual market
interest rate is 10.25%. Determine today's
purchasing price for this bond.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Similar questions

Krystian Inc. issued 10-year bonds with a face value of $100,000 and a stated rate of 4% when the market rate was 6%. Interest was paid semi-annually. Calculate and explain the timing of the cash flows the purchaser of the bonds (the investor) will receive throughout the bond term. Would an investor be willing to pay more or less than face value for this bond?
Neubert Enterprises recently issued $1,000 par value 15-year bonds with a 5% coupon paid annually and warrants attached. These bonds are currently trading for $1,000. Neubert also has outstanding $1,000 par value 15-year straight debt with a 7% coupon paid annually, also trading for $1,000. What is the implied value of the warrants attached to each bond?
Issue Price The following terms relate to independent bond issues: 500 bonds; $1,000 face value; 8% stated rate; 5 years; annual interest payments 500 bonds; $1,000 face value; 8% stated rate; 5 years; semiannual interest payments 800 bonds; $1,000 face value; 8% stated rate; 10 years; semiannual interest payments 2,000 bonds; $500 face value; 12% stated rate; 15 years; semiannual interest payments Required Assuming the market rate of interest is 10%, calculate the selling price for each bond issue.
On July 1, Somerset Inc. issued $200,000 of 10%, 10-year bonds when the market rate was 12%. The bonds paid interest semi-annually. Assuming the bonds sold at 58.55, what was the selling price of the bonds? Explain why the cash received from selling this bond is different from the $200,000 face value of the bond.
A company issued bonds with a $100,000 face value, a 5-year term, a stated rate of 6%, and a market rate of 7%. Interest is paid annually. What is the amount of interest the bondholders will receive at the end of the year?
Smashing Cantaloupes Inc. issued 5-year bonds with a par value of $35,000 and an 8% semiannual coupon (payable June 30 and December 31) on January 1, 2018, when the market rate of interest was 10%. Were the bonds issued at a discount or premium? Assuming the bonds sold at 92.288, what was the sales price of the bonds?