n March 2022, ABC Co. is considering the issuance of $100 million 10-year bonds rated AAA. The issue will most likely be registered and sold some time in June. ABC Co. desires to hedge the pending issue using Treasury bond futures contracts each representing $100,000. In order to hedge the bond issue, ABC Co. must a. Sell 1,000 contracts b. Buy 1,000 contracts c. Sell 100 contracts
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On March 2022, ABC Co. is considering the issuance of $100 million 10-year bonds rated AAA. The issue will most likely be registered and sold some time in June. ABC Co. desires to hedge the pending issue using Treasury bond futures contracts each representing $100,000. In order to hedge the bond issue, ABC Co. must
a. Sell 1,000 contracts
b. Buy 1,000 contracts
c. Sell 100 contracts
d. Buy 100 contracts
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- 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?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 November 1, 2022, Colicchio Conglomerates sold $225,000,000 20-years bonds with a coupon rate of 5% paid semi-annually. The market rate for a security of similar risk and maturity is 6%. Colicchio Conglomerates hired Faulkner Investment Vehicles to issue the securities at a cost of 1.275% of the selling price of the security. Record journal entries for the issuance of the bond, the first two interest payments, and any required adjusting entries for Colicchio Conglomerates for the fiscal year ending December 31, 2022.
- On January 1, 2020, ABC Corporation invested in P2,000,000 bonds of DEF Company that will mature on December 31, 2022. The bond has a coupon rate of 10% and a required rate of return of 12%. What is the value of the investment on January 1, 2020.The company expects to invest approximately $1 million in three months in corporate bonds. The current rate of interest is 6.50%. To hedge the position, the company wishes to use 3 year Treasury bond futures contracts trading at 93.800. Calculate the profit or loss from the position in futures market if in 3 months the contracts are trading at 91.500. a. $-59597.47 b. $-600963.24 c. $60096.32 d. $-6009.63 e. $56205.28The balance sheet at December 31, 2024, for Nevada Harvester Corporation includes the liabilities listed below: 10% bonds with a face amount of $42 million were issued for $42 million on October 31, 2015. The bonds mature on October 31, 2035. Bondholders have the option of calling (demanding payment on) the bonds on October 31, 2025, at a redemption price of $42 million. Market conditions are such that the call is not expected to be exercised. Management intended to refinance $8.7 million of its 9% notes that mature in May 2025. In early March, prior to the actual issuance of the 2024 financial statements, Nevada Harvester negotiated a line of credit with a commercial bank for up to $6.5 million any time during 2025. Any borrowings will mature two years from the date of borrowing. Noncallable 10% bonds with a face amount of $18.2 million were issued for $18.2 million on September 30, 2005. The bonds mature on September 30, 2025. Sufficient cash is expected to be available to retire…
- On January 1, 2024, Ithaca Corporation purchases Cortland Incorporated bonds that have a face value of $210,000. The Cortland bonds have a stated interest rate of 10%. Interest is paid semiannually on June 30 and December 31, and the bonds mature in 10 years. For bonds of similar risk and maturity, the market yield on particular dates is as follows: Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) January 1, 2024 11.0% June 30, 2024 12.0% December 31, 2024 14.0%On January 1, 2024, Ithaca Corporation purchases Cortland Incorporated bonds that have a face value of $210,000. The Cortland bonds have a stated interest rate of 10%. Interest is paid semiannually on June 30 and December 31, and the bonds mature in 10 years. For bonds of similar risk and maturity, the market yield on particular dates is as follows: Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) January 1, 2024 11.0% June 30, 2024 12.0% December 31, 2024 14.0% Prepare all appropriate journal entries related to the bond investment during 2024, assuming that Ithaca chose the fair value option when the bonds were purchased, and that Ithaca determines fair value of the bonds semiannually. Ithaca calculates interest revenue at the effective interest rate as of the date it purchased the bonds. 1. Record the investment in bonds with a face value of $210,000, a stated interest rate of 10% and a market…On November 1, 2013, Matthew Corp. sold a $600 million bond issue to finance the purchase of a new distribution facility. These bonds were issued in $1,000 denominations with a maturity date of November 1, 2033. The bonds have a coupon rate of 8.00% with interest paid semiannually. Required: Determine the value today, November 1, 2023 of one of these bonds to an investor who requires a 10 percent return on these bonds. Why is the value today different from the par value? Assume that the bonds are selling for $870.00. Determine the current yield and the yield-to-maturity. Explain what these terms mean. Explain what layers or textures of risk play a role in the determination of the required rate of return on Matthew’s bonds. For each of the following events, explain what the impact would be on the yield-to-maturity: The bond is downgraded by a rating agency. The economy seems to be shifting from a recession to a boom economy. The bond is subordinated to other bonds. Congressional…
- On January 1, 2024, Ithaca Corporation purchases Cortland Incorporated bonds that have a face value of $330,000. The Cortland bonds have a stated interest rate of 5%. Interest is paid semiannually on June 30 and December 31, and the bonds mature in 10 years. For bonds of similar risk and maturity, the market yield on particular dates is as follows: Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) January 1, 2024 11.0% June 30, 2024 12.0% December 31, 2024 14.0% Required: 1-a. Calculate the price Ithaca would have paid for the Cortland bonds on January 1, 2024 (ignoring brokerage fees). 1-b. Prepare a journal entry to record the purchase. 2. Prepare all appropriate journal entries related to the bond investment during 2024, assuming Ithaca accounts for the bonds as a held-to-maturity investment. Ithaca calculates interest revenue at the effective interest rate as of the date it purchased the bonds. 3.…On January 1, 2022, Investor Limited Purchased a bond with the following characteristics: - Face Value of $60,000 with a coupon rate of 6% per annum - Interest Paid semi-annually on June 30 and December 31 - Maturity date: December 31, 2026 The bonds were priced to yield 8%, Investor Limited paid $55,133 At December 31, 2022, the bonds had a fair value of $59,000 Required Assume that investor limited decides to account for this bond investment using FVOCI. Prepare the 2022 journal entries related to this bond investment. Assume that Investor Limited sells $45,000 face value of the bonds on January 1,2023. Proceeds from selling these bonds were $44,000. Prepare the journal entry for the sale of the bonds. Please, do the 2 questions!On January 1, 2020, MMM Inc. issues $100,000 face value, 8% semiannual coupon bonds maturing in 10 years for $114,878. The bonds pay interest on June 30 and December 31 of each year. The market initially prices these bonds to yield 6% compounded semiannually. How much interest expense will MMM Inc. report on its income statement for the year ending December 31, 2020? Select one: a. $8,000 b. $7,429 c. $6,876 d. $6,893 e. $4,573