Assume that Beach Inc. has an issue of 20-year $1,000 par value bonds that pay 7% interest, annually. Further assume that today's required rate of return on these bonds is 5%. How much would these bonds sell for today?

Assume that Beach Inc. has an issue of 20-year $1,000 par value bonds that pay 7% interest, annually. Further assume that today's required rate of return on these bonds is 5%. How much would these bonds sell for today?

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 2PA: On July 1, Somerset Inc. issued $200,000 of 10%, 10-year bonds when the market rate was 12%. The...

See similar textbooks

Related questions

Q: The following bond was quoted in The Wall Street Journal: Bonds Current yield Volume Close Net…

A: Here, To Find: How much more did the 4 bonds cost today =?

Q: Assuming that money is worth 10%, compute the present value of: 1. $14,000 received 15 years from…

A: Present Value: It represents the present worth of the future amount and is computed by discounting…

Q: StataProb Corporation has a current market value of 106.42 dec 92 per share. Which corporation will…

A: The earning of corporation will depends on the dividend and market price of stock and that would…

Q: Explain with examples how to measure exchange rate risk for long positions and short positions Notes…

A: Forex (Forex or FX) is the trading of one currency against another. For example, you can exchange US…

Q: 1. Find the following. Show your derivations b. The continuous time value in 5 years of a note that…

A: Solution: Annuity means a constant same amount paid every period. The accumulated value of these…

Q: Tamily-sized bag of snacks costs $4.79. Today, there is bay 3, get 1 free" incentive, What is the…

A: Buy 3 get 1 free means that on buying 3 bags you get 1 bag for free. In other words you get 4 bags…

Q: - Three years ago you bought a home for $150,000 using a fully amortizing loan with a 5% down…

A: Here, Cost of Home is $150,000 Down Payment is 5% Interest Rate is 4.5% Term of Loan is 30 years…

Q: of a $35 strike call? Assume S = $38.50, = 0.25, r = 0.06, the stock pays no dividend andthe option…

A: When a derivatives contract is exercised, the strike value is the cost at which it could be…

Q: O Low, more

A: Corporate tax refers to the tax rate charged on the profits of the corporation. These are paid on…

Q: tax rate is 40%.How much would BG Company's earnings after taxes be under this financing plan? O…

A: Net income (earnings after tax) refers to the amount of profit earned by the company from selling…

Q: Explain the concept of 'beta within the frame work of CAPM model. Discuss the relevance of the…

A: CAPM is the Capital asset pricing model. The formula is: Expected return=Risk free rate+Beta×Market…

Q: A businessman has a future liability of P200,000 and agrees to pay P47,720 annually for x years at…

A: Future value of a loan liability can be defined as the terminal value of all instalment payments…

Q: If there is a small probability of a risk occurring, a business may choose to assume the risk rather…

A: Risk management is the process through which companies detect, analyse, and address risks that may…

Q: a P5,000,000 loan to be credited to ABC on May 1, 2022. The prevailing interest rate on Jan. 31 was…

A: Forward rate agreements(FRA) are interest rate derivatives. This is an instrument used by…

Q: Option Trading Strategies - Two Assets $40 First Asset Profit Second Asset Profit Total Profit 1st…

A: In case of a Long put, Payoff is (exercise price - Stock price,0), I,e option is exercised only if…

Q: The Dow Jones Industrial Average (DJIA30) and the Standard strial Index (S&P500) have a number of…

A: Dow Jones and S and P 500 are very important in stock market of US and are barometers of US stock…

Q: Housing prices in a particula county have incheased by 255% over the prce of houses five yrs ago (a)…

A: Solution: Average cost of house today will be the cost in today's terms after adjusting percentage…

Q: Music producer, will receive royalties over a period of 3 years for the theme song she made for a TV…

A: The present value of any amount to be received in the future is generally lesser than the future…

Q: Consider a call and a put options with the same strike price and time to expiry. Given that the…

A: The put-call parity: When the strike price on an underlying asset and the time to expiry are the…

Q: er share on June 15 to all holders on record as of May 31st. The firm's stock price closed today at…

A: Dividend: It represents a portion of profits or earnings of the company that is paid to the…

Q: Which of the following will decrease the length of the operating cycle? 1 Reducing the…

A: The answer is option D. All of the above.

Q: If the chance that a risk will occur cannot be reasonably predicted or the possible financial loss…

A: An uninsurable risk is one that presents an unknown or unacceptable risk of loss for an insurance…

Q: To create a fund of P1,000,000, how many deposits of P48,000 must be placed at the beginning of each…

A: Accumulated fund (AF) = P1,000,000 Monthly deposit (m) = P48,000 Monthly interest rate (r) = 0.005…

Q: Mary bought a bike payable monthly for 10 months starting at the end of the month. How much is the…

A: Mortgage is a loan to buy an asset. The cost of the asset will be paid in equal instalments of…

Q: Which of the following situations are likely to reduce agency conflicts between stockholders and…

A: Agency conflicts arise due to the conflict between shareholders and managers with respect to the…

Q: If the annual interest rate printed on the face of a bond is 10 percent, the face value of the bond…

A: Here, Annual Interest rate = 10% Face value of the bond =$1,000 Present value of the bond = $1,250…

Q: Service Income, Customer 1-P50,000.00 Salaries Paid to Clerk – P5,000.00 Rent Expense - P3,000.00…

A: Total Expenses = Salaries paid to clerk + Utilities Expense + Rent Expense + Salaries paid to…

Q: AL Enterprises purchases P4,562,500 in goods per year from its sole supplier on terms of 2/15, net…

A: Discount rate = 0.02 (i.e. 2%) Allowed payment days = 50 Discount days = 15

Q: Champion Bakers uses specialized ovens to bake its bread. One oven costs $1000,000 and lasts about 4…

A: First cost (X) = $1000000 Annual cost (A) = $10000 n = 4 years r = 17%

Q: Angel wants to buy a car after six years which will cost sh.10M. How much should he save annually if…

A: The answer is option A. 5,066,000

Q: Red See Industries is expected to pay a cash dividend of $2.31 per share next year (D1) The company…

A: Cash dividend is the one type of dividends that can be provided by the company to its shareholders.…

Q: Which investment will help him reach his goal faster? Approximate the time that each investment will…

A: Time value of money (TVM) refers to the method used to measure the amount of money at different…

Q: Apple has 200 shares outstanding. It earns $2,000 per year and expects to pay all of it as…

A: Per year earning = $2,000 Number of shares = 200 Required rate of return = 0.05

Q: QUESTION 4 Bob and Roberta are married and have two children. They are covered by a comprehensive…

A: Coinsurance is the amount, usually stated as a fixed percentage, an insured must pay against a claim…

Q: a. If interest rates suddenly rise by 1.4 percent, what is the percentage change in price of Bond A…

A: Bond valuation refers to a method which is used to compute the current value or present value (PV)…

Q: Zero coupon bonds: a. All of the listed items are correct b. Are close to worthless since the…

A: Zero coupon bonds, as the name indicates, have zero coupons. In other words they do not pay any…

Q: An engineer planning for retirement is considering purchasing a bond that has a face value of…

A: A bond is a debt instrument used to raise capital. It can be traded on the secondary market.

Q: Why would a city choose to purchase municipal bond insurance?

A: Municipal bond insurance can be defined as the security issued by the government with the motive to…

Q: Suppose you have borrowed $50 from a foreign lending institution. The loan requires a payment of 6…

A: Loan Amount $ 50.00 Time Period (Days) 6 Periodic Payment $…

Q: Torpedo Co. is considering a new project generating an annual cash revenue of $500,000 in…

A: Time value of money (TVM) refers to the method used to measure the amount of money at different…

Q: ars, what will their payment and the total cost of their loan be?

A: Loan Amount: It refers to the amount borrowed by the borrower from the bank. The borrower pays the…

Q: What is the rate-of-return on assets if the growth rate is 9.5%?

A: retained earnings = 90500*(1-15%) = 76925 net income = 76925*(1+9.5%)= 84232.875

Q: Given the data below, what is the simple linear regression model that can be used to predict ales in…

A: Linear regression is used to determine the relationship between the scalar response and one or more…

Q: Assume you buy a March RM1625 FBM-KLCI call option for RM25 and hold until expiry. What will be…

A: In the given case, Call option is purchased at a premium of $25 Long call is exercised only if Stock…

Q: P: A 8% coupon, 30-year maturity bond with par value of S1,000. Assume annual interest rate is 8%…

A: Bartleby Honor Code states that when multiple questions are posted, the subject expert should solve…

Q: has a 10 percent return on total assets of sh.1000,000 and a net profit margin of 5 percent. What…

A: Net profit margin is the net income on sales and return on assets is net income on the assets and…

Q: Blue Cod, Inc., a private firm in the holiday gift industry, is considering a new project. The…

A: Net present value of the project can be calculated by subtracting the present value of cash inflows…

Q: Location A would require an investrment of $3.4 million and $55,000 per ycar to maintain. Location B…

A: Potential investments and chosen based on their benefits and costs. The investment option which…

Q: Option Payoffs and Profits 540 s20 Option Pey Option ro Eerce Pre s20 S40 $10 $20 $10 $40 $50 se0…

A: In case of a Long put, Payoff is (exercise price - Stock price,0), I,e option is exercised only if…

Q: a Calculate the cost of each capital component: i the after-tax cost of debt| i the cost of…

A: Note: This post has several qeuestions. The first question, with its three sub-parts, has been…

Question

Definition Definition Calculates the present value of a bond's expected future periodic coupon payments. Bond valuation determines the theoretical fair value of a particular bond and helps investors estimate what rate of return they could expect. The bond's theoretical fair value is computed by discounting the future cash flows or coupon payments by an applicable discount rate.

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 Explanation

VIEW

Step 2 Answer

VIEW

Step by step

Solved in 2 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

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?
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?
Evie Inc. issued 50 bonds with a $1,000 face value, a five-year life, and a stated annual coupon of 6% for $980 each. What is the total amount of interest expense over the life of the bonds?
Waylan Sisters Inc. issued 3-year bonds with a par value of $100,000 and a 6% annual coupon when the market rate of interest was 5%. If the bonds sold at 102.438, how much cash did Williams Sisters Inc. receive from issuing the bonds?
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.
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?
On July 1, a company sells 8-year $250,000 bonds with a stated interest rate of 6%. If interest payments are paid annually, each interest payment will be ________. A. $120,000 B. $60,000 C. $7,500 D. $15,000
Gingko Inc. issued bonds with a face value of $100,000, a rate of 7%, and a 10-yearterm for $103,000. From this information, we know that the market rate of interest was ________. A. more than 7% B. less than 7% C. equal to 7% D. equal to 1.3%
Beluga Inc. issued 10-year bonds with a face value of $100,000 and a stated rate of 3% when the market rate was 4%. Interest was paid annually. The bonds were sold at 87.5. What was the sales price of the bonds? Were they issued at a discount, a premium, or at par?