a)
To determine:
a)
Explanation of Solution
Given information:
Cost of debt is 7%,
M is $1,000 and n is 12 (2028-2016)
Calculation of interest:
Hence interest is $87.50
Calculation of value of bond:
Hence, value of bond is $1,139
b)
To determine: Value of bond as on April 15, 2016 with a required rate of return of 9%.
b)
Explanation of Solution
Given information:
Cost of debt is 9%,
M is $1,000 and n is 12 (2028-2016)
Interest is $87.50
Calculation of value of bond:
Hence, value of bond is $983
c)
To determine: Value of bond as on April 15, 2016 with a required rate of return of 9%.
c)
Explanation of Solution
Given information:
Cost of debt is 11%,
M is $1,000 and n is 12 (2028-2016)
Interest is $87.50
Calculation of value of bond:
Hence, value of bond is $854
Calculation of value of Company F bond at 8% interest rate:
Given information:
Cost of debt is 11%,
M is $1,000 and n is 24 (12x2 semi-annually)
Calculation of interest:
Hence, interest is $43.75
Calculation of value of bond:
Hence, value of bond is $1,057
Note: It is assumed that, this answer will require 8% nominal return, but not the effective return and the semi-annual discount rate would be 3.92%.
Want to see more full solutions like this?
Chapter 6 Solutions
Contemporary Financial Management, Loose-leaf Version
- 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?arrow_forwardChung Inc. issued $50,000 of 3-year bonds on January 1, 2018, with a stated rate of 4% and a market rate of 4%. The bonds paid interest semi-annually on June 30 and Dec. 31. How much money did the company receive when the bonds were issued? The bonds would be quoted at what rate?arrow_forwardKrystian 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?arrow_forward
- Bats Corporation issued 800,000 of 12% face value bonds for 851,705.70. The bonds were dated and issued on April 1, 2019, are due March 31, 2023, and pay interest semiannually on September 30 and March 31. Bats sold the bonds to yield 10%. Required: 1. Prepare a bond interest expense and premium amortization schedule using the straight-line method. 2. Prepare a bond interest expense and premium amortization schedule using the effective interest method. 3. Prepare any adjusting entries for the end of the fiscal year, December 31, 2019, using the: a. straight-line method of amortization b. effective interest method of amortization 4. Assume the company retires the bonds on June 30, 2020, at 103 plus accrued interest. Prepare the journal entries to record the bond retirement using the: a. straight-line method of amortization b. effective interest method of amortizationarrow_forwardOn 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. $15,000arrow_forwardIssue Price The following terms relate to independent bond issues: 500 bonds; $1,000 face value; 8% stated rate; 5 years; annual interest payments 500 bonds; $1,000 face value; 8% stated rate; 5 years; semiannual interest payments 800 bonds; $1,000 face value; 8% stated rate; 10 years; semiannual interest payments 2,000 bonds; $500 face value; 12% stated rate; 15 years; semiannual interest payments Required Assuming the market rate of interest is 10%, calculate the selling price for each bond issue.arrow_forward
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
- Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage LearningCollege Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning