Question
In: Economics
On October 15, 2016, Koala, Inc. issued a 10 year bond (with a typical $1000 face...
On October 15, 2016, Koala, Inc. issued a 10 year bond (with a typical $1000 face value) that had an annual coupon value of $60. [We are assuming that the 2020 coupon has just been redeemed.]
• Initially, the bond was sold for the premium price of $1,025.
• On October 15, 2020, this bond was selling for only $975.
• The market rate of interest for a riskless corporate bond, of this maturity, was 4.5% on October 15, 2016, which reflects market expectations about future rates of inflation.
• The market rate of interest for a riskless corporate bond, of this maturity, was 4.0% on October 15, 2020, which reflects market expectations about future rates of inflation.
Question: What was the nominal yield on this bond on October 15, 2016? [To 1 decimal place.]
Solutions
Expert Solution
1. Face value = 1000 $
Annual coupon payment = 60 $
Nominal Yield = Annual coupon payment / Bond Face value * 100
(Nominal Yield is always calculated on Face value of the bond, is dosent change irrespective of bond price trading at discount or premium)
= 60 / 1000 * 100
= 6 %
Rahul Sunny answered 2 years agoRelated Solutions
On October 15, 2016, Koala, Inc. issued a 10 year bond (with a typical $1000 face...
On October 15, 2016, Koala, Inc. issued a 10 year bond (with a
typical $1000 face value) that had an annual coupon value of
$60. [We are assuming that the 2020 coupon has just been
redeemed.]
Initially, the bond was sold for the premium price of
$1,025.
On October 15, 2020, this bond was selling for only $975.
The market rate of interest for a riskless corporate bond, of
this maturity, was 4.5% on October 15, 2016, which reflects market
expectations...
On October 15, 2016, Koala, Inc. issued a 10 year bond (with a typical $1000 face...
On October 15, 2016, Koala, Inc. issued a 10 year bond (with a
typical $1000 face value) that had an annual coupon value of $60.
[We are assuming that the 2020 coupon has just been redeemed.]
• Initially, the bond was sold for the premium price of
$1,025.
• On October 15, 2020, this bond was selling for only $975.
• The market rate of interest for a riskless corporate bond, of
this maturity, was 4.5% on October 15, 2016,...
On October 15, 2016, Koala, Inc. issued a 10 year bond (with a typical $1000 face...
On October 15, 2016, Koala, Inc. issued a 10 year bond (with a
typical $1000 face value) that had an annual coupon value of $60.
[We are assuming that the 2020 coupon has just been redeemed.]
• Initially, the bond was sold for the premium price of
$1,025.
• On October 15, 2020, this bond was selling for only $975.
• The market rate of interest for a riskless corporate bond, of
this maturity, was 4.5% on October 15, 2016,...
On October 15, 2016, Koala, Inc. issued a 10 year bond (with a typical $1000 face...
On October 15, 2016, Koala, Inc. issued a 10 year bond (with a
typical $1000 face value) that had an annual coupon value of $60.
[We are assuming that the 2020 coupon has just been redeemed.]
• Initially, the bond was sold for the premium price of
$1,025.
• On October 15, 2020, this bond was selling for only $975.
• The market rate of interest for a riskless corporate bond, of
this maturity, was 4.5% on October 15, 2016,...
On October 15, 2016, Koala, Inc. issued a 10 year bond (with a typical $1000 face...
On October 15, 2016, Koala, Inc. issued a 10 year bond (with a
typical $1000 face value) that had an annual coupon value of $60.
[We are assuming that the 2020 coupon has just been redeemed.]
• Initially, the bond was sold for the premium price of
$1,025.
• On October 15, 2020, this bond was selling for only $975.
• The market rate of interest for a riskless corporate bond, of
this maturity, was 4.5% on October 15, 2016,...
On October 15, 2016, Koala, Inc. issued a 10 year bond (with a typical $1000 face...
On October 15, 2016, Koala, Inc. issued a 10 year bond (with a
typical $1000 face value) that had an annual coupon value of $60.
[We are assuming that the 2020 coupon has just been redeemed.]
• Initially, the bond was sold for the premium price of
$1,025.
• On October 15, 2020, this bond was selling for only $975.
• The market rate of interest for a riskless corporate bond, of
this maturity, was 4.5% on October 15, 2016,...
Answer for 8 and 9 On October 15, 2016, Koala, Inc. issued a 10 year bond...
Answer for 8 and 9
On October 15, 2016, Koala, Inc. issued a 10 year bond (with a
typical $1000 face value) that had an annual coupon value of $60.
[We are assuming that the 2020 coupon has just been redeemed.]
Initially, the bond was sold for the premium price of
$1,025.
On October 15, 2020, this bond was selling for only $975.
The market rate of interest for a riskless corporate bond, of
this maturity, was 4.5% on October...
On October 1, 2016, Ball Company issued 10% bonds dated October 1, 2016, with a face...
On October 1, 2016, Ball Company issued 10% bonds dated October
1, 2016, with a face amount of $350,000. The bonds mature in 8
years. Interest is paid semiannually on March 31 and September 30.
The proceeds from the bond issuance were $355,751.07 to yield
9.70%. Ball Company has a December 31 fiscal year-end and does not
use reversing entries.
Required:
1.
Prepare journal entries to record the issuance of the bonds and
the interest payments for 2016 and 2017...
On October 1, 2016, Ball Company issued 10% bonds dated October 1, 2016, with a face...
On October 1, 2016, Ball Company issued 10% bonds dated October
1, 2016, with a face amount of $350,000. The bonds mature in 8
years. Interest is paid semiannually on March 31 and September 30.
The proceeds from the bond issuance were $355,751.07 to yield
9.70%. Ball Company has a December 31 fiscal year-end and does not
use reversing entries.
Required:
1.
Prepare journal entries to record the issuance of the bonds and
the interest payments for 2016 and 2017...
Maggie, Inc. Issued a 10 year, $100,000 face bond with a 10% interest rate. The bond...
Maggie, Inc. Issued a 10 year, $100,000 face bond with a 10%
interest rate. The bond pays the interest for 10 years and then
pays the principal of $100,000 at the end of the 10th year. (Solve
1-3)
1.) If the current interest rates are 10% at the time of the
issue, on the date of the issue Maggie Inc. will receive:
a.) $100,000
b.) $91,954.77
c.) $73,734.81
d.) $88,699.55
2.) If the current interest rates are 12% at the...
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