Midland Utilities has a bond issue outstanding that will mature to its $1,000 par value in12 years. The bond has a coupon interest rate of 12% and pays interest annually. a. Find the bond value if the required return is (1) 12%, (2)16%, and (3) 9%. b. Use your finding in part a and the graph attached to discuss the relationship between the coupon rate, the required return and the market value of the bond relative to its par value. c. What two possible reasons could cause the required return to differ from the coupon interest rate?

Midland Utilities has a bond issue outstanding that will mature to its $1,000 par value in12 years. The bond has a coupon interest rate of 12% and pays interest annually. a. Find the bond value if the required return is (1) 12%, (2)16%, and (3) 9%. b. Use your finding in part a and the graph attached to discuss the relationship between the coupon rate, the required return and the market value of the bond relative to its par value. c. What two possible reasons could cause the required return to differ from the coupon interest rate?

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter12: Capital Structure

Section: Chapter Questions

Problem 1PROB

See similar textbooks

Similar questions

E17.6 (LO1) (HFCS Debt Securities Entries and Financial Statement Presentation) At December 31, 2019, the held-for-collection and selling debt portfolio for Steffi Graf SA is as follows. Security Amortized Cost Fair Value Unrealized Gain (Loss) A €17,500 €15,000 (€2,500) B 12,500 14,000 1,500 C 23,000 25,500 2,500 Total €53,000 €54,500 1,500 Previous fair value adjustment balance-Dr. 400 Fair value adjustment-Dr. €1,100 On January 20, 2020, Steffi Graf SA sold security A for €15,100. The sale proceeds are net of brokerage fees. Instructions a. Prepare the adjusting entry at December 31, 2019, to report the portfolio at fair value. b. Show the statement of financial…
If $457,000 of 8% bonds are issued at 94, what is the amount of cash received from the sale? Select the correct answer. A. $420,440 B. $457,000 C. $429,580 D. $493,560
True (t) or False (f) _____ If $150,000 face value bonds are issued at 104, the proceeds received will be $104,000
A conversion of a face value $1 million convertible bond for $1 million of common stock would most likely be: B . reported as a $1 million fi nancing cash outfl ow and infl ow.
For bond A with C = $40, n= 4, y= 0.04, P=$1,000 and M= $1,000, calculate Macaulay Duration
Durable Co.’s December 30, 20X0, balance sheet contained the following items in the long-term liabilities section: Unsecured 9.375% registered bonds (P25,000 maturing annually beginning in 20x4) ₱275,000 11.5% convertible bonds, callable beginning in 20x9, due 2010 125,000 Secured 9.875% guarantee security bonds, due 2x10 ₱250,000 10.0% commodity backed bonds (P50,000 maturing annually beginning in 20x5) 200,000 What are the total amounts of serial bonds and debenture bonds?
Particulars As on 31.3.2019(Rupees. In Lacs)As on 31.3.2020(Rupees. In Lacs)Investment in FinancialAssets- 100Equity Share Capital 150 160Long term Loans taken 100 200Dividend paid - 26Dividend received - 10Interest received - 15 Calculate the debt-equity ratio & comment
APhP10000,5%bondwithsemiannualcouponsispricedtoyield7%.Findthepriceifthebondis redeemable at par at the end of 20 years. a. PhP 8,160.80 b. PhP 7,864.49 c. PhP 7,578.76 d. PhP 7,160.90
If $467,000 of 7% bonds are issued at 98, the amount of cash received from the sale is a. $434,310 b. $457,660 c. $467,000 d. $499,690
Problem5: OnJanuary1,2021,BLITZENCompanyissued10%bondsdatedJanuary1,2021withafaceamountof ₱8,000,000.ThebondsmatureonDecember31,2026.Forbondsofsimilarriskandmaturity,the marketyieldis14%.Interestispaidsemi-annuallyonJune30andDecember31.(Useatmost,4decimal placesforPVfactors) Preparethejournalentriesfor2021 Computeorprovidetheanswersforthefollowing: DeterminethepriceofthebondsonJanuary1,2021. Howmuchistheinterestexpensefortheyearended,December31,2021? Howmuchistheinterestexpensefortheyearended,December31,2022? WhatisthecarryingamountofthebondsonDecember31,2022?
Consider a newly issued 5-year, $1,000 par value, 2.815% annual-pay bond selling for $881.41. Its modified duration is closest to A. 4.9769. B. 4.7132. C. 4.4635. D. 4.1141.
1. ABC, Inc. issued P1,000,000, 10% bonds to yield 8%. bond issuance costs were P10,000. How should ABC calculate the net proceeds to be received from the issuance? * a. Discount the bonds at the stated rate of interest. b. Discount the bonds at the stated rate of interest and deduct bond issuance costs. c. Discount the bonds at the market rate of interest. d. Discount the bonds at the market rate of interest and deduct bond issuance costs.