Question

In: Accounting

Brief Exercise A-13 Dempsey Railroad Co. is about to issue $318,000 of 10-year bonds paying an...

Brief Exercise A-13 Dempsey Railroad Co. is about to issue $318,000 of 10-year bonds paying an 12% interest rate, with interest payable semiannually. The discount rate for such securities is 8%. Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) How much can Dempsey expect to receive for the sale of these bonds? (Round answer to 0 decimal places, e.g. 2,525.) Dempsey can expect to receive $ Click if you would like to Show Work for this question: Open Show Work

Solutions

Expert Solution

Price of bond is present value of cash flows from bond.
Present Value of coupon interest $ 2,59,303
Present Value of Face Value $ 1,45,132
Price of Bond $ 4,04,436
Working:
Face Value 318000
Semi annual Interest = 318000 * 6% = 19080
Present Value of annuity of 1 = (1-(1+i)^-n)/i Where.
= (1-(1+0.04)^-20)/0.04 i 4%
= 13.59033 n 20
Present Value of 1 = (1+i)^-n
= (1+0.04)^-20
= 0.45639
Present Value of coupon interest = 19080 * 13.59033 = $       2,59,303
Present Value of face Value = 318000 * 0.45639 = $       1,45,132

Related Solutions

Brief Exercise A-14 Dempsey Railroad Co. is about to issue $334,000 of 9-year bonds paying an...
Brief Exercise A-14 Dempsey Railroad Co. is about to issue $334,000 of 9-year bonds paying an 11% interest rate, with interest payable semiannually. The discount rate for such securities is 12%. Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) In this case, how much can Dempsey expect to receive from the sale of these bonds? (Round answer to 0 decimal places, e.g. 2,525.) Dempsey can expect to...
rief Exercise A-14 Dempsey Railroad Co. is about to issue $288,000 of 10-year bonds paying an...
rief Exercise A-14 Dempsey Railroad Co. is about to issue $288,000 of 10-year bonds paying an 9% interest rate, with interest payable semiannually. The discount rate for such securities is 10%. Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) In this case, how much can Dempsey expect to receive from the sale of these bonds? (Round answer to 0 decimal places, e.g. 2,525.) Dempsey can expect to...
Dempsey Railroad Co. is about to issue $290,000 of 6-year bonds paying an 12% interest rate,...
Dempsey Railroad Co. is about to issue $290,000 of 6-year bonds paying an 12% interest rate, with interest payable semiannually. The discount rate for such securities is 10%. Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) How much can Dempsey expect to receive for the sale of these bonds? (Round answer to 0 decimal places, e.g. 2,525.) Dempsey can expect to receive $   
Waterway Railroad Co. is about to issue $460,000 of 6-year bonds paying an 7% interest rate,...
Waterway Railroad Co. is about to issue $460,000 of 6-year bonds paying an 7% interest rate, with interest payable semiannually. The discount rate for such securities is 8%. Click below to view the factor tables. Table 1. Future Value of 1 Table 2. Future Value of an Annuity of 1 Table 3. Present Value of 1 Table 4. Present Value of an Annuity of 1 (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) In...
Wildhorse Co. is about to issue $329,900 of 6-year bonds paying an 11% interest rate, with...
Wildhorse Co. is about to issue $329,900 of 6-year bonds paying an 11% interest rate, with interest payable semiannually. The discount rate for such securities is 10%. Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) How much can Wildhorse expect to receive for the sale of these bonds? (Round answer to 0 decimal places, e.g. 2,575.)
The JG Investment Bank is about to issue a new series of 10 year bonds. The...
The JG Investment Bank is about to issue a new series of 10 year bonds. The bonds will have a $1000 face value and will be rated AA by a respected Bond Rating Agency. Currently, the yield to maturity on AA rated bonds is 210 basis points above the yield on similar maturity government bonds. The bonds will make annual coupon payments.                                              a)   If the YTM on 10 year...
Brief Exercise 14-3 The Monty Company issued $240,000 of 13% bonds on January 1, 2017. The...
Brief Exercise 14-3 The Monty Company issued $240,000 of 13% bonds on January 1, 2017. The bonds are due January 1, 2022, with interest payable each July 1 and January 1. The bonds were issued at 96. Prepare the journal entries for (a) January 1, (b) July 1, and (c) December 31. Assume The Monty Company records straight-line amortization semiannually. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account...
Toys Co. issued 10-year bonds a year ago at a coupon rate of 10%. The bonds...
Toys Co. issued 10-year bonds a year ago at a coupon rate of 10%. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 9%, what is the current bond price?
Orkney House is issuing bonds paying $62 per year but paid semianaully that will mature 13...
Orkney House is issuing bonds paying $62 per year but paid semianaully that will mature 13 years from today. The bond is currently selling for $975 for a face of $1,000. Calculate: a) Coupon rate b) Current yield c) The yield to maturity d) The market price of the bond if the market rates for bonds of equal risk changed to 5%.
Zero-coupon bonds 13. On January 1, 20x1, ABC Co. acquired 10%, $100,000 bonds for $94,738. The...
Zero-coupon bonds 13. On January 1, 20x1, ABC Co. acquired 10%, $100,000 bonds for $94,738. The bonds, together with accrued interests, are due on December 31, 20x3. The bonds are measured at amortized cost. The effective interest rate is 12%. Requirements: a. How much are the carrying amounts of the interest receivable on December 31, 20x1 and December 20x2, respectively? b. How much are the carrying amounts of the investment on December 31, 20x1 and December 20x2, respectively? c. Prepare...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT