Jonabelle is considering investing in bonds. Some data are as follows: Face Value of bonds P 3,000,000 Date of bond issuance Date of bond maturity Payment interest Nominal interest rate Effective interest rate Required: Compute for the following: 1. Expected market Price of the bond 2. Amount of premium or discount of the bond January 1,2022 January 1,2027 Quarterly 8% 12%

Jonabelle is considering investing in bonds. Some data are as follows: Face Value of bonds P 3,000,000 Date of bond issuance Date of bond maturity Payment interest Nominal interest rate Effective interest rate Required: Compute for the following: 1. Expected market Price of the bond 2. Amount of premium or discount of the bond January 1,2022 January 1,2027 Quarterly 8% 12%

Excel Applications for Accounting Principles

4th Edition

ISBN:9781111581565

Author:Gaylord N. Smith

Publisher:Gaylord N. Smith

Chapter11: Bond Pricing And Amortization (bonds)

Section: Chapter Questions

Problem 7R

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On January 1, 2018, Wawatosa Inc. issued 5-year bonds with a face value of $200,000 and a stated interest rate of 12% payable semi-annually on July 1 and January 1. The bonds were sold to yield 10%. Assuming the bonds were sold at 107.732, what is the selling price of the bonds? Were they issued at a discount or a premium?
Which of these two bonds offers the highest current yield? Which one has the highest yield to maturity? a. A 6.55 percent, 22-year bond quoted at 52.000 b. A 10.25 percent, 27-year bond quoted at 103.625
a. Reset the Data Section to its initial values. The price of this bond is 1,407,831. What would it be if there were only 9 or 8 years to maturity? Use the worksheet to compute the bond issue prices and enter them in the spaces provided. Bond issue price (9 years to maturity) __________________ Bond issue price (8 years to maturity) __________________ b. Compare these prices to the bond-carrying values found in the effective interest amortization schedule you originally printed out in requirement 3. Explain the similarity. c. Click the Chart sheet tab. The chart presented shows the price behavior of this bond based on years to maturity. Explain what effect years to maturity has on bond prices. Check your explanation by trying 8% as the effective rate (cell E10) and clicking the Chart sheet tab again. Also try 9%. When the assignment is complete, close the file without saving it again. Worksheet. Modify the BONDS3 worksheet to accommodate bonds with up to 20-year maturity. Use your new model to determine the issue price and amortization schedules of a 2,000,000, 18-year, 10% bond issued to yield 9%. Preview the printout to make sure that the worksheet will print neatly, and then print the worksheet. Save the completed file as BONDST. Hint: Expand both amortization schedules to 20 years. Expand the scratch pad to 20 years. Modify FORMULA1 in cell F17 to include the new ranges. Chart. Using the BONDS3 file, prepare a line chart that plots annual interest expense over the 10-year life of this bond under both the straight-line and effective interest methods. No Chart Data Table is needed. Put A23 to A32 in the Label format and then select A23 to A32, D23 to D32, and B40 to B49 as a collection. Enter all appropriate titles, legends, formats, and so forth. Enter your name somewhere on the chart. Save the file again as BONDS3. Print the chart.
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.
An investor gathers the following data on three newly-issued bonds: 1-year government bond, 3.0% yield 1-year ABC corporate bond, 4.2% yield 10-year government bond, 3.8% yield If investors require a 0.5% liquidity premium for corporate bonds, what are the components of the required return on a 10-year ABC bond?
Bond prices depend on the market rate of interest, stated rate and time Compute the price of the following 5% bonds of Teledyne Inc. a. $900,000 issued at 92 b. $500,000 issued at 104.5 c. $500,000 issued at 95.5 d. $200,000 issued at 100 e. $600,000 issued at 102 3/4
A bond has following characteristics: it was issued on 14.06.2018 and has 10 years to maturity. Coupon is paid semi-annually and carries interest rate of 3,2%. Market interest rate is currently 2,9% for similar issues. Investor purchased the bond on 19.11.2021. a. Calculate MacDuration b. Calculate ModDuration c. When market interest rates increase by 50 basis points, calculate price effect using results obtained in question (b)
Your company is planning to issue new bonds soon. Your boss gives you the following informationand asks you to calculate the interest rate at which to issue the bonds. Given this information, whatinterest rate do you recommend? Expected Inflation Rate: 3% Interest rate of similar corporations' (AAA rated) 30-year bonds: 6.5% Interest rate of 30 - Year Treasury Bonds: 5.38% Interest rate of 3 -month treasury bills: 4.89% Liquidity - risk premium: 0.03 Instruction: Type ONLY your numericalanswer in the unit of dollars, NO $ sign, NO comma, and round to two decimal places. E.g., if youranswer is $7, 001.56, should type ONLY the number 7001.56, NEITHER 7,001.6, $7001.6, $7,001.6,NOR 7002. Otherwise, Blackboard will treat it as a wrong answer.
You are considering an investment in 30-year bonds issued by Green Corporation. The bonds have no special covenants. The Wall Street Journal reports that 1-year T-bills are currently earning 5.25 percent. Your broker has determined the following information about economic activity and Green Corporation bonds: Real risk-free rate = 2.25% Default risk Premium = 1.15% Liquidity risk premium = 0.50% Maturity risk premium = 1.75% a) What is the inflation premium? b) What is the fair interest rate on Green Corporation 30-year bonds?
You are the portfolio manager of a large company that invests in many securities including corporate bonds. Youhave been assigned the task of bond portfolio management. You are provided with the following data in relationto bonds:Maturity period 7 yearsCoupon rate 12%Par value $1,000Coupons on bonds are paid annuallyYield to maturity of bonds 8%Required:i) Calculate the Macualay’s duration, modified duration and convexityii) Calculate the change in bond price when yield to maturity changes by one percent using modifieddurationiii) Calculate the change in bond price when yield to maturity changes by one percent when convexityis considered
The bond certificate with a par value P1,000,000 and a bond rate of 10 % was sold for P1,064, 176.58 . Calculate the yield that the investor obtained from his investment .
You are considering an investment in 30-year bonds issued by Moore Corporation. The bonds have no special covenants. The Wall Street Journal reports that 1-year T-bills are currently earning 2.15 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds:Real risk-free rate = 0.75%Default risk premium = 2.05%Liquidity risk premium = 1.40%Maturity risk premium = 2.65% What is the inflation premium? (Round your answer to 2 decimal places.) Expected IP ______.__% What is the fair interest rate on Moore Corporation's 30-year bonds? (Round your answer to 2 decimal places.) Fair Intrest Rate _______.__%