Answered: Calculate the yield to maturity of both…

Calculate the yield to maturity of both bonds. All else being equal, explain which bond the issuing company and the investors in bonds would find more attractive.

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 3EB: Smashing Cantaloupes Inc. issued 5-year bonds with a par value of $35,000 and an 8% semiannual...

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Question

Suppose a company issued two bonds, that have the same degree of default risk and
mature in 20 years. Both bonds are callable at $1,100. The first bond has a par value
of $1,000, a coupon rate of 5%, makes annual coupon payments, and currently sells
for $620. The second one also has a par value of $1,000, pays coupon rate of 7.5%
annually, and its market price is $1,000.
i) Calculate the yield to maturity of both bonds. All else being equal, explain which
bond the issuing company and the investors in bonds would find more attractive.
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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?
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